Why Warren Buffett Sold Bank Stocks EXCEPT Bank of America? | Berkshire 2023

Summary

In 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.