Buffett's Latest Headache: U.S. Bancorp 30 comments
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While the market is trying its best to trade higher today, US Bancorp (USB), which until recently had held up relatively well during this bear market, is getting hit hard. As shown in the chart below, the stock is trading down nearly 20% today after reporting a 65% decline in Q4 income due to larger than expected writedowns during the quarter. With today's decline, the stock joins the rapidly growing list of financial sector stocks that have lost at least half of their value already this year.
US Bancorp's largest shareholder is Berkshire Hathaway (BRK.A), which holds a stake of more than 4%. It is because of Berkshire's large stake that many have recommended the stock throughout the credit crisis. The reasoning was that Warren Buffett wouldn't invest in a bank if he thought it had taken on too many risky investments. So much for that argument.
In fact, a look at Berkshire Hathaway's equity holdings from its most recent filing shows that while its portfolio held up better than the S&P 500 over the course of 2008, 2009 has already been a tough time for the company. Year to date, the dollar value of Berkshire's equity portfolio (using the company's filing as of 9/30) is down 15.6% compared to a 10% decline in the S&P 500. And Berkshire's third largest holding, Wells Fargo (WFC), which has also often been cited as one of the 'safe' financials out there, is down nearly 51% so far in 2009 (see table below) as well. Like just about every other investor, even Buffett is having a hard time making money in this market.
Buffett is widely considered to be among the greatest investors of all time. However, his growing list of 'headaches' (index put options that Berkshire wrote, GS and GE preferred stock deals, WFC, and now USB) and the performance of Berkshire's stock have shown that even the best haven't been spared during this bear.
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On Jan 21 07:20 PM Big Al45 wrote:
> Actually, it indicates that they are setting money aside early to
> cover their 1st Quarter losses. It doesn't necessarily mean that
> they have a good loan portfolio.
>
> Although their portfolio is almost certainly "better" than those
> of Citi, BAC, and the other "money center" felons.
I think BKR's 2008 receord is more a knock on the Buy-&-Hold-Forever philosophy than on Buffett or Simpson's stock picking abilities.
It's been a tough year for most investors, and you can't rightly judge an investor by one year, unless he simply blew the holy city in that one year. And surely that's not occurred here.
But at the risk of getting shot (or strung up), let me say that I disagree with the Buffett/Munger Buy-&-Hold-Forever philosophy, which they developed forty-years ago when capital gains taxes were punitive.
In the context of that time and now, I don't think it's the proper strategy.
The best investors know when to take profits and they know when to take losses. To me, this is more important to successful investing than picking stocks, which perhaps we all put entirely too much time in discussing.
By carefully dumping losers and holding on to winners (especially in bull markets), I believe the investor has a better chance of having much better years than constant traders or Buy-&-Hold-Forever investors.
By carefully watching the economics of the sector a company is in during down markets and selling when the sector begins getting sick and holding on when the sector looks at least relatively stable is the route to go for me.
The comment was on the article being stupid. Bespoke might be full of intelligent people who had a brain fart and wrote a bunch of silliness for all I know. The fact remains, it is an amazingly stupid article. Buffett has made it abundantly clear that he focuses on the long-term.
The banks income fell 65% for one qtr so that makes Buffetts investment stupid? Do you understand the leverage involved in banking, by its very nature? Do you think that bank profits just go up by 10% every year, smooth sailing forever? It appears possible that we are in the worst recession since the great depression. The bank posts a profit, but writes down some assets and that is bad? What do you think happens over the next 10 years?
As well as this, the article implies that all the investments in this list are Buffetts. They arent.
On Jan 21 07:57 PM williemo wrote:
> To : Daniel B
> I would think twice before I made a piercing comment like you did
> about the authors of the article. You obviously aren't familiar with
> Bespoke.
The only fundamental statement Bespoke makes is that USB Q4 EPS is down 65%, and that's due to the large loan loss provision. After reviewing the earnings report, it appears they (USB) are being realistic with their provision. Deposits were up, loans were up, and net interest income was up 23%. I suspect there is still a quarter or 2 of big provisions, but when those level off, earnings will take off.
Also, I suspect there will be further cleaning up to do with respect to Downey and PFF acquisitions, and I would not be suprised to see the dividend cut. So I don't think I'm being pollyannish about USBs prospects.
However, I'm kicking my self for not loading up the boat when the stock briefly traded below $12, and may do so anyway if it pulls back to $14. Did you notice that buyers went wild when this stock hit 12? At that price, who cares what it does over the next 3 to 6 months. If I can buy this at 14, I have no doubt that sometime over the next 3 years that it will be trading at 28 or higher.
I agree with ArtfulDodger above. I've seen too many stocks round trip to be a buy and hold forever investor. But I am a value investor and I think Mr. Market is offering us an opportunity.
I'm not familiar with Bespoke either, other than I notice that they publish a lot of articles. Some of them are very good, and some, like this one, are a little below par. Putting out lots of articles appears to be a part of their marketing program. Nothing wrong with that. Hopefully, critical comments on the poor articles will encourage more of the good ones. I would expect the same treatment.
On Jan 21 07:57 PM williemo wrote:
> To : Daniel B
> I would think twice before I made a piercing comment like you did
> about the authors of the article. You obviously aren't familiar with
> Bespoke.
Buffet Burger and Omaha Sacred Cow Steaks...
Somethings burning in the kitchen...
On Jan 21 03:50 PM scorp99cam wrote:
> The GE and GS deals don't seem like a headache to me. If you gave
> me the same terms, I would take the headache.
On Jan 22 06:31 PM long_on_oil wrote:
> Buffets investment in USB falls 1.6% of his total portfolio and Berkshire
> stock falls 10%, that really makes sense. As for Buffets, buy good
> companies with great management and hold them, that is called investing.
> Buy today and sell tomorrow, that is called trading. Anyone can make
> money in a bull market, it takes an expert to make money in a bear
> market and most investors are not experts. So personally I will buy
> BRK at this level and let Warren be my financial adviser.
On Jan 22 08:01 AM weiwentg wrote:
> I'm not familiar with Bespoke either, but I can't say I'm impressed.
> They talk only about price without delving into the underlying performance
> of US Bancorp.
>
> The bank had a rough quarter, but they experienced deposit and loan
> growth. Their credit metrics didn't deteriorate as fast as their
> peers. If any one of Warren's major holdings has headaches, it's
> American Express or Wells Fargo - and even those two have very strong
> underlying businesses.
On Jan 22 09:43 PM Richard Raia wrote:
> Will somebody please ask Mr. Buffet to step down..?? His most recent
> two investments are a complete and total disaster..!! GE….Getting
> Educated and GS….Going South..!!
One thing about Warran Buffet though, it's a lot easier to recall and note his mistakes, than it is to count his victories, which would take many pages.
Buffett HAS invested circles around all of us, and to want to see him fail is not only bizarre, but doesn't benefit anyone except the low man on the totem poles ego, so he can say "see, it's not just me who's an idiot, even Buffett lost some money"
It is one thing to argue whether Buffett's approach is right or wrong, but completely another to provided false, misleading information! That's right -- the data in your chart seems to suggest that the stocks you've listed are what Berkshire owns.
For example, Buffett bought BAC first when it was at $48 and then again at $43 in 2007. At that time, Bank of America had acquired neither Countrywide nor Lynchie. Soon after the Countrywide acquisition, BAC tanked to almost $18 and went back up temporarily to $36. When Buffett discovered that CEO Ken Lewis was trying to win the master-of-bad-deals contest, he promptly dumped Bank of America at $36. Berkshire doesn't own a single share of BAC today! People reading your article might see that BAC is a Berkshire stock and buy it and hopelessly get screwed. BAC is trading at $5 now. Get your facts straight from gurufocus.com
sneelak
it's call Barclays (BCS) in US (BARC.L) UK
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Look what the CEO says..
w3.cantos.com/09/barcl...