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Berkshire Hathaway: Will Bank of America be like Apple?

  • Allegedly, Berkshire Hathaway has requested Fed approval to increase its stake in Bank of America. Based on Q2 stakes, Apple is Berkshire Hathaway's largest stake, followed by Bank of America.
  • Warren Buffett, president of Berkshire Hathaway, has gradually increased stakes at Apple and Bank of America. Although Buffett did not add new Apple shares between the fourth quarter of 2018 and the second quarter of 2019, Berkshire Hathaway gradually added Bank of America shares.

Berkshire Hathaway App

Berkshire Hathaway (BRK-B) (BRK.B) reportedly approached the Fed to increase its stake in Bank of America (BAC). According to Berkshire Hathaway 13F, it added more Bank of America shares in the second quarter. The company continued to add Bank of America shares in the third quarter. Generally, asset managers are required to report their holdings within 45 days of the end of the quarter. However, Berkshire Hathaway's stake in Bank of America rose beyond 10%. As a result, the company had to declare its stake before Q3 13F. Incidentally, the company has been gradually selling Wells Fargo (WFC) shares in recent quarters in an attempt to limit its stake to less than 10%. A stake above 10% usually leads to more regulatory screening.

Warren Buffett and Bank of America

Warren Buffett, president of Berkshire Hathaway, invested in Bank of America in 2011. Since then, the company has increased its stake in Bank of America. Berkshire Hathaway also served on Bank of America warrants in 2017. The company faced problems when it bought a stake in Bank of America. Shares rose after news that Buffett was investing in the company. During 2007 and 2008, Buffett invested in companies like General Electric and Goldman Sachs that appeared to be in trouble. The investment of General Electric (GE) was not beneficial to Buffett. Since then, he has left the company. However, Berkshire Hathaway continues to own Goldman Sachs.

Berkshire Hathaway and Apple

Currently, Apple (AAPL) is Berkshire Hathaway's largest stake. While Apple owns about 5.5 percent of Apple, its stake is valued at about $ 59 billion. Berkshire Hathaway's stake in Bank of America is about $ 28 billion, based on current market prices. Notably, Buffett has not invested in many technology companies over his five-decade investment career. Buffett sees Apple as a consumer company. Historically, Berkshire Hathaway's portfolio has been overweight in consumer and financial companies. Buffett seemed comfortable with these two sectors.

Can Bank of America be the next Apple for Buffett?

Buffett invested in Apple in 2016. He gradually added more Apple shares until the third quarter of 2018. Since then, Buffett has not added or sold any Apple shares. However, an investment manager other than Berkshire Hathaway sold some Apple shares in the fourth quarter of 2018. The change was a surprise. Apple shares fell in the fourth quarter of 2018. As Berkshire Hathaway's Fed filing shows, the company looks comfortable. The company increased its stake in Bank of America by over 10%. Buffett previously tried to limit holdings in banks like Wells Fargo to below 10 percent.

Considering Berkshire Hathaway's huge cash pile, you can add more Bank of America shares. The company is already Berkshire Hathaway's second largest holding company. Can Bank of America outperform Apple in terms of bet amount? We'll have to wait and see. However, Buffett is known for large concentrated stakes.

Will the investment be fruitful?

Buffett had his share of criticism. A former Berkshire Hathaway shareholder recently criticized him for keeping a lot of money. Buffett seemed optimistic about the banking sector. In the second quarter, he also added more J.P. Morgan shares. Given today's markets, it is difficult to make arguments for investing in banking space. We are in an environment of falling interest rates, where the Fed and other central banks are willing to lower rates to stimulate growth. Banks typically perform poorly in a lower interest rate environment. Global economic growth is slowing down. Some experts still see a recession on the horizon. In this scenario, the banking sector may be under pressure.

Long term image

Warren Buffett is a long term investor. He is not concerned about price movements in the short term. Looking at the long-term scenario, the banking industry may face challenges from new age technology companies. Some investors view cryptocurrencies as a risk to the traditional banking system. In another series, we will explore whether duplication in the banking sector really is a convincing argument for Buffett.

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