Jason Moser: Matt, big news here, as is with every quarter. Berkshire Hathaway's 13-F came out.
That's the SEC form that gives us an idea of what they are buying, what they're selling.
You wrote an article here recently on fool.com that gave us some great insight there.
Talk to me a little bit about Berkshire's 13-F, and what stood out to you.
Matt Frankel: We knew this was a fairly active quarter for Berkshire.
In its earnings report, we saw that it spent something like $14 billion on stocks.
But there were a few things that really stood out.
One, Berkshire invested in Oracle, which was a new position, and shows how Berkshire's
embracing technology recently. Moser: Embracing his own brand, too, right?
He's the oracle of Omaha. He may as well own some Oracle.
Frankel: I wonder if that had anything to do with it.
The other big thing that stood out was bank stocks.
Not just that Berkshire bought one bank, they initiated a $4 billion position in JP Morgan,
but Berkshire upped its position in pretty much every major bank stock it owns,
with the exception of Wells Fargo.
It bought almost 200 million more shares of Bank of America, 24 million shares of U.S. Bank,
another 5 million shares of Goldman, which was its biggest percentage increase for the quarter.
It increased its Goldman stake by 38%. Bank of New York Mellon.
There are a couple of things to take from this.
#1, Berkshire can't own any more than 10% of a bank, which is why he's branching out
into new big bank positions like JP Morgan and selling a little of his Wells Fargo every quarter.
He needs to maintain that stake a little under 10%, which it is.
Bank of America now is very close to being a 10% stake. Goldman's not quite there yet.
But some of the smaller ones are.
JP Morgan's one that he could buy another $20 billion worth and not be close to the cap yet.
In my opinion, that's why he decided to buy JP Morgan.
It's a very well-run bank, and he has a lot of room to expand his position.
And Berkshire really needs to spend billions of dollars to move the needle.
But, just the general theme of buying bank stocks.
In all, we don't know the exact price Buffett paid for all these, but he spent close to
$15 billion on bank stocks during the quarter. He already had an overweight position in banks.
So, why is Buffett buying so many banks? One, it's been a big underperformer of the S&P.
Banks were a huge beneficiary of tax reform.
A lot of the banks, when we've discussed their earnings, have earnings up 40-40% year over year.
And the main reason for that is tax reform. Banks paid pretty much the maximum corporate tax rate.
And banks have yet to realize the benefit of the rising rate environment.
We mentioned that the profit margins for banks go up as interest rates go up, which tends to happen.
But so far, the Fed's raised rates about eight times.
We're yet to see that kind of rate movement on the long end of the yield curve,
meaning on mortgage rates and things like that. So, banks are yet to realize the profit potential from that.
It's still generally a deregulated banking environment, a business-friendly banking environment.
Even though the Democrats took back the house, we're not likely to see any significant new
banking regulations come to be with a Republican in the White House and a Republican-controlled Senate.
Pretty neutral regulatory environment.
It should be a very nice climate for growth, given how well the economy is doing.
Most banks are posting very good loan and deposit growth, great numbers when it comes
to defaults and charge-offs. Asset quality is looking really good.
It's a really great growth environment for banks, and the market hasn't really given
banks the credit for it to be a great growth environment.
It looks like Buffett sees some unlocked and unrealized value in the sector,
and that's what he's betting his money on.
Moser: It makes sense. We have an economy that is very credit-driven.
When that's the case, these are the big banks that are out there helping a lot of that money
move around in one way, shape, or form.
To your point about JPMorgan Chase -- we're big fans of that company, obviously.
One of the bigger banks out there doing more and more with the capital it's able to gather.
I think Jamie Dimon has proven to be a very forward-thinking CEO.
Not only that, but Buffett and Dimon, along with Bezos, working together on that healthcare
initiative to try to help cut costs and improve healthcare within their own companies,
and hopefully bring some of those learnings that to the greater corporate society.
I think that all makes sense.
I did want to follow up with you on one thing here, with the Wells Fargo position.
We've been very critical of Wells Fargo for some time here now.
The cutting of the Wells Fargo position there, you think that really is more related to not
hitting that 10% mark, as opposed to throwing down the gauntlet and saying, "We're sick
and tired of your culture problems there.
Fix it or we're going to start weaning our way off of your position in our portfolio?"
Frankel: That's a very good question. A couple of points.
First of all, Buffett came out about a year ago and said, "We have no intention of getting rid of Wells Fargo.
We are going to start selling to keep our stake under 10%." Berkshire's stake is a little over 9%.
Buffett also owns some Wells Fargo in his personal portfolio.
Combined, he has to be very careful that it doesn't give them 10% control.
Second, Wells Fargo, because it has been a big underperformer, is buying back its stock
very aggressively, which is making Buffett's stake naturally go up over time.
Each quarter for the past few quarters, Buffett's had to sell a small percentage.
I think it was a little under 2% of the Wells Fargo stake that he sold this quarter.
But, a small percentage each quarter.
Each time it happens, a few weeks later, Buffett has come out and said, "We believe in Wells Fargo.
They made a mistake."
Last quarter, he actually said he believes Wells Fargo will be the best-performing of
the big four over the next ten years.
So, he's come out in support of Wells Fargo many times as a long-term investment.
He's said he has no intention of getting rid of it from the portfolio.
And we've seen this consistent pattern of selling to maintain the stake at a certain
level over the past three or four quarters now.
Moser: Alright. We will wait until next quarter to see what the trends look like there.