4 Reasons Warren Buffett Loves Wells Fargo More Than Any Other Stock

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1. Great company at a good price, or a good company at a great price?

In 1989, Buffett wrote to Berkshire Hathaway shareholders that, “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” He was speaking about “bargain-purchase” folly, one of the traps of the value investing philosophy that can be surprisingly difficult to avoid. In his 1989 letter, he admits to falling into it himself with, among other things, the purchase of the Berkshire textile manufacturing company. He was “enticed to buy because the price looked cheap,” but as he went on to say, the deal wasn’t such a bargain after all.

“Now, when buying companies or common stocks,” he wrote, “we look for first-class businesses accompanied by first-class managements.” Ostensibly, this means Wells Fargo. Buffett first invested in the bank in 1989, and has been seriously adding to his position for nearly a decade. At the time of his first purchase, Buffet told Berkshire shareholders that, “With Wells Fargo, we think we have obtained the best managers in the business, Carl Reichardt and Paul Hazen.” Reichardt was president of the bank from 1978 to 1984, and chair the institution until 1994; Hazen succeed Rechardt as president, until 1998, and later chair, until 2001.

Buffett owned 5 million shares of Wells Fargo stock in 1990 for a cost of $289.4 million. He’s bought in at a number of different price points since, but his philosophy appears to have remained the same. He’s continued to add to his position based on the idea that Wells Fargo is one of the best banks in the business being run by some of the best people in the business. At the helm right now is John Strumpf.

Back in 1990, Buffett wrote that, “Because leverage of 20:1 magnifies the effects of managerial strengths and weaknesses, we have no interest in purchasing shares of a poorly-managed bank at a “cheap” price. Instead, our only interest is in buying into well-managed banks at fair prices.”

Percentage of company owned Cost ($, in millions) Market ($, in millions)
2004 3.3 488 1249
2005 5.7 2754 5975
2006 6.5 3697 7758
2007 9.2 6677 9160
2008 7.2 6702 8973
2009 6.5 7394 9021
2010 6.8 8015 11123
2011 7.6 9086 11024
2012 8.7 10906 15592

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