Saturday, March 01, 2014

Buffett Gives a Shout-Out, Nobody Hears It


 Well the New York Times didn’t mention it, and the Wall Street Journal didn’t mention it, and for all we know the Arkansas Gazette didn’t mention it, either, so we’ll mention it: the giant shout-out Warren Buffett gave to Bank of America in today’s letter to shareholders.  (Turns out Carol Loomis was right on it in Fortune, here, but still...) 
 Until now, we avoided writing anything about the Buffett letter because his annual missive to shareholders has clearly “jumped the shark,” what with the universal breathless front-page coverage, not to mention bloggers “live-blogging” the letter like a World Cup final.
 But despite all the coverage there was one glaring absence, a statement that seemed to us to be the most interesting, unexpected statement in the document, and it comes where you least expect it—in his discussion of Berkshire’s stock investments.
 Now, most of these are stocks Berkshire has owned for years, and in some cases decades, and the table listing the stocks is familiar to anybody who has paid the least bit of attention to Berkshire Hathaway.
 And this year, as in years past, the table shows American Express, Coke, Goldman Sachs, IBM, Wells Fargo and others.
 But in the text following the table, Buffett makes sure to point out that the table excludes Berkshires warrants to buy 700 million shares of BAC “at any time prior to September 2021 for $5 billion.”
 Buffett notes the shares have a current value close to $11 billion, and says flatly, “we are likely to purchase the shares just before expiration.”
 Then comes the clincher:
“It is important for you to realize that Bank of America is, in effect, our fifth largest equity investment and one we value highly.”
 Thus at current market prices, Berkshire Hathaway owns (and values “highly”) a Bank of America position the size of which is 5-times its infamous Goldman Sachs stake, almost triple its U.S. Bancorp position, and more than its Wal-Mart and Procter & Gamble holdings combined.
 Only Wells Fargo ($22 billion), Coke ($17 billion), AMEX ($14 billion) and IBM ($13 billion) are bigger.   And we know how Buffett feels about those...
 ...which tells Berkshire shareholders quite a lot about what Warren Buffett thinks of Bank of America.
 For the record, while we never recommend stocks on these virtual pages—or suggest shorting them, for that matter—the footnote that always accompanies these columns applies in spades to Bank of America.
 But even if it didn’t, that would still strike us as the most interesting shout-out nobody heard in Warren Buffett’s 2013 shareholder letter.


Jeff Matthews
Author “Secrets in Plain Sight: Business and Investing Secrets of Warren Buffett”
(eBooks on Investing, 2013)    $4.99 Kindle Version at Amazon.com

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The content contained in this blog represents only the opinions of Mr. Matthews.   Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations.  This commentary in no way constitutes investment advice, and should never be relied on in making an investment decision, ever.  Also, this blog is not a solicitation of business by Mr. Matthews: all inquiries will be ignored.  And if you think Mr. Matthews is kidding about that, he is not.  The content herein is intended solely for the entertainment of the reader, and the author.

3 comments:

villainx said...

Only slight nitpicking, but GE and GS amended the warrant agreement with Berkshire. BAC most likely will too. So it will still end up being a gigantic position, only $5 billion less.

Anonymous said...

Great to see you posting again, Jeff. It is surely a major time commitment on your part, and much appreciated from this end.

Anonymous said...

Jeff,

Nice post.

By the way, I read somewhere on the interwebs a few days ago that The Daily Journal Corporation, chaired by non other than CTM, has also amassed a stake in BAC.

Interesting?