Why Warren Buffett Sold Bank Stocks EXCEPT Bank of America? | Berkshire 2023
Summary
TLDRIn this transcript, the speaker reflects on the banking industry, comparing big banks to regional ones in light of recent events at Silicon Valley Bank. He emphasizes the importance of sound banking practices and shares his personal experience with Berkshire's investment in a bank in 1969. The speaker also discusses the impact of the 1970 Bank Holding Company Act on Berkshire's business direction. He expresses caution about owning banks due to the unpredictable influence of politics and public misunderstanding of the banking system, while acknowledging his continued investment in Bank of America due to his confidence in its management.
Takeaways
- 🏦 The speaker initially invested in a bank in 1969 and found it to be a sound investment with no bad debts or unnecessary costs.
- 📉 The Banking Holding Company Act of 1970 forced the speaker to divest from the bank, which led to a shift in investment focus from banking to insurance.
- 💼 The speaker believes that banks can still be run soundly and can earn good money, despite the changes and innovations in the banking industry.
- 🔮 Uncertainty about the future of banks, especially in light of recent events and the involvement of politicians, makes it difficult to predict their trajectory.
- 🤔 The American public is likely confused about banking due to imperfect communication and a lack of understanding of the banking system.
- 🏦 The speaker has personal investments in a local bank, which they do not worry about despite the FDIC limits.
- 💔 The speaker sold bank stocks during the pandemic and in the last six months, indicating a lack of confidence in the banking sector's stability.
- 📉 The speaker is cautious about owning banks due to the unpredictable dynamics and consequences of banking events.
- 🤝 The speaker maintains a relationship with Bank of America, appreciating its management and the deal they have with them.
- 🚀 The speaker acknowledges a lack of understanding about certain aspects of banking and the broader economy, comparing it to not understanding complex subjects like spaceships.
- 💔 The speaker expresses a general distrust of situations where everyone wants to get rich, viewing such an atmosphere as toxic.
Q & A
What is the speaker's initial perspective on the business models of big banks compared to regional banks?
-The speaker suggests that if banks follow sound banking methods and avoid risky practices, they can be a good investment, without explicitly comparing big banks to regional banks in the context of the Silicon Valley Bank event.
Why did Warren Buffett and Charlie Munger initially invest in a bank in 1969?
-They invested in a bank because they found it to be a sound investment opportunity, with the bank being a 'lovely sound, constructive institution' that made money without unnecessary risks or bad debts.
How did the Banking Holding Company Act of 1970 impact Berkshire Hathaway's investment strategy?
-The Act forced Berkshire Hathaway to divest from the bank they had invested in, as it changed the rules around bank ownership and investment, leading them to focus more on insurance companies instead.
What was the speaker's experience with the bank they invested in?
-The speaker describes their experience as positive, with the bank never having a bad debt, unnecessary cost, or presenting any deposit insurance risk to the government.
Why did Berkshire Hathaway sell bank stocks during the pandemic and in the last six months?
-The speaker does not provide a specific reason for the sale, but it is implied that it was due to uncertainty and changing dynamics in the banking sector.
What is the speaker's current stance on owning banks?
-The speaker expresses caution about owning banks due to the unpredictable nature of events and the lack of understanding of the banking system by the public and some politicians.
How does the speaker view the impact of the 2008 financial crisis on the banking system?
-The speaker believes that the 2008 crisis changed the 'stickiness of deposits' and the banking system's dynamics, which has consequences that are difficult to predict.
What is the speaker's personal banking situation?
-The speaker has personal money with a local bank, possibly above the FDIC limit, and does not express concern about the safety of their deposits.
What deal did the speaker propose to Bank of America and why does he stick with it?
-The speaker does not detail the specific deal but mentions that he likes Bank of America and its management, which is why he proposed the deal and continues to support it.
How does the speaker perceive the American public's understanding of the banking system?
-The speaker believes that the American public is confused about banking and that this lack of understanding has consequences, although he does not specify what those consequences are.
What is the speaker's view on the atmosphere in investment banking?
-The speaker expresses distrust for situations where everyone wants to get rich and envies others, describing this atmosphere as toxic.
Outlines
🏦 Reflections on Banking Investments and Regulations
The speaker reflects on the banking industry's evolution and the impact of regulations on investment decisions. They recount their initial investment in a bank in 1969 and the subsequent divestment due to the Banking Holding Company Act of 1970. The speaker emphasizes the potential for sound banking practices to yield good returns and expresses a preference for banking over insurance, had the opportunity continued. They also mention recent sales of bank stocks during the pandemic and the last six months, indicating uncertainty about the future of banking, influenced by political and public misunderstandings of the banking system. The speaker concludes with a personal stance on banking, indicating caution and a limited understanding of the industry's dynamics.
📈 The Changing Landscape of Banking and Public Perception
This paragraph discusses the speaker's perspective on the transformation of banking over their lifetime. They acknowledge the positive contributions of early banking services to immigrants and the introduction of credit cards. However, they express a growing concern about the industry's resemblance to investment banking and a pervasive 'get rich quick' mentality, which they view as toxic. The paragraph concludes with a critical note on the current state of the banking industry and its societal implications.
Mindmap
Keywords
💡Banking Models
💡Implicit Guarantee
💡Sound Banking Methods
💡Banking Holding Company Act of 1970
💡FDIC Insurance
💡Risk Management
💡Investment Banking
💡Credit
💡Regulatory Changes
💡Public Perception
💡Diversification
Highlights
The speaker discusses the business models of big banks compared to regional banks in the wake of the Silicon Valley Bank event.
They mention that if banks follow sound banking methods, they can be a good investment.
The speaker shares their personal history with banking, having bought a bank in 1969.
They explain how the Banking Holding Company Act of 1970 forced them to divest from the bank they owned.
The bank they owned was a sound, profitable institution with no unnecessary costs or bad debts.
The speaker expresses that banking was more attractive to them than insurance due to more acquisition targets.
They mention selling bank stocks during the pandemic and in the last six months.
The speaker is unsure about the future of big and regional banks due to the involvement of politicians and public misunderstanding.
They believe the American public is confused about banking, which has consequences.
The speaker mentions the stickiness of deposits has changed due to past events, affecting the banking system.
They express caution about owning banks due to unpredictable dynamics and events.
The speaker has personal money in a local bank and is not worried about FDIC limits.
They mention maintaining a relationship with Bank of America and their confidence in its management.
The speaker acknowledges the difficulty in projecting the future of banks due to many variables.
Charlie comments on the evolution of banking in his lifetime, from early banking for immigrants to credit cards.
He expresses distrust for situations where everyone wants to get rich, which he views as toxic.
Transcripts
uh this question comes from Davis Hance
in Houston Texas
he writes what do you think about the
business models of the big Banks as
compared to the regional banks in the
wake of the events at Silicon Valley
Bank and how does the perceived implicit
guarantee of all deposits at all banks
affect big Banks and those Regional
Banks yeah well I I
can say this if if you if you found if
you follow sound banking methods which
means not doing some things that other
people do
huh a bank could be a perfectly decent
investment in fact Charlie and I
was me originally in 1969 we bought a
bank at Berkshire and we had 19 million
dollars invested in that bank and we had
17 million I think invested in our
insurance companies and if the banking
holding company Act of 1970 hadn't been
passed we might have ended up owning a
lot of banks instead of a lot of
insurance companies we were looking at
more Banks and Harry Kip was taking us
around Chicago and there were other
things we could do and then Bingo they
passed the 1970 Bank holding company act
and we had to divest ourselves of that
bank in in in 10 years which by the way
I'd never had a bad debt oh it never had
an unnecessary cost it made nothing but
money with no risk it never presented
any Deposit Insurance risk to the
government zero it was a lovely sound
constructive institution in this
community and any person already
deserved credit could get credit and we
were going to buy more we were forced
out of it and we were going to buy more
Banks and if we bought more Banks we
probably wouldn't have expanded the
insurance business but
you know the law changed and so we
divested and and we've done all kind of
insurance but banking was more
attractive to us it was bigger than
there were more targets uh to buy and uh
you could run a perfectly sound bank
then and uh no negotiable certificate
said all these things all the inventions
that came later and you could still run
them today and you could earn
you don't know a lot you can earn good
money very good money and we didn't
we would have found more Banks but uh
were precluded from doing that and
we've sold Banks
Bank stocks uh in the last well we sold
them first when the pandemic broke out
and then we sold some more
in the last six months and uh
we don't know where
the shareholders of the big Banks
necessarily or the regional Banks or
anybody are heading I've got my bank
I've got my own personal money and I'm
probably above the
FDIC limited I've got it with a local
bank and I think I don't worry about it
in the least but in terms of
owning Banks events will determine
their future and you've got politicians
involved you've got
you've got a whole a lot of people don't
really understand how the system works
uh and I would say that the event
something less than a perfect
communication
between various people and the American
public so the American public is
probably as confused about
banking as ever and that has
consequences and nobody knows what the
consequences are because
uh every event
starts recreating a different Dynamic I
mean in physics you know that
Pi is going to be 3.14 you know infinite
number of numbers after that but uh no
matter what happens but you don't know
what has happened to the stickiness of
deposits at all they got changed by 2008
it's gotten Changed by this I mean it
and that changes everything and so we're
very cautious in a situation like that
about ownership
uh
of Banks and we do
remain with
One Bank holding a a a a a deal that but
we originated that deal and uh with the
Bank of America I like Bank of America I
like I like the management and
I proposed the deal to them so I'm I'm I
stick with it but
do I know how to project out what's
going to happen from her the answer is I
don't because I've seen so many things
in the last
feel much which really weren't that
unexpected to me to see but which
reconfirmed my beliefs that the American
public doesn't understand their banking
system and some people in Congress
perhaps don't understand it any more
than I underst I don't understand what
the spaceships go up I mean there's all
kinds of things I don't know about
uh
if you're in Congress you've taken a
position on everything and sometimes
it's to your advantage if you really
understand it not to say exactly what
you
what you feel and uh and here we are
Charlie yeah
well a lot has happened in banking in my
lifetime I welcomed all that early
banking of the deserving immigrants by
the early Bank of America
and I think all the credit cards when
they came in as original bank cards were
a great contribution to civilization
and
but
the game year it gets the more it looks
like Investment Banking the last I like
it as a citizen
I don't want I have always I am deeply
distrustful situations in which
everybody wants to get rich and envies
everybody else I regard that atmosphere
as utterly toxic
[Music]
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