Wednesday, May 6, 2009

More on Warren and WFC

If he increases BRK stake in WFC, he would be required to convert BRK into a bank holding company. Apparently that is not feasible.

My response:
The bullish theory on banks is that garbage loans aren't as bad as people say.

So Warren, why don't you buy a $10B block of WFC home equity loans that have been unjustly maligned and are dragging down this poor little bank.

There are preferreds that he could own that pay close to 10%.

Also if Warren really wanted to invest, wouldn't that have been easier than giving them TARP money?

1 comment:

Anonymous said...

First off, we don't know if Warren has bought preferreds and not sure if he participated in the 7b equity issue. I have never heard of Warren buying mortgage pools before, so i don't think that is reasonable. This is akin to saying why doesn't he go out and buy 100,000 copies of the washington post to help them out- even though he has publicly stated that newspapers aren't so hot! Yet he doesn't turn around and sell his newspaper positions.

I don't think you need to be terribly smart to know that banks don't do well when large portions of their mortgages investments go into foreclosure. Everyone knows Warrens time period for investments is infinte, therefore he picks companies that will perform well in that period. Doesn't mean that have rough periods along the way.

For example, in the past you have previously called BBY, JOE and COF the big shorts! Well since you wrote those blogs BBY has gone down and above. JOE has gone down and just under. COF has has gone down and up. The point here is time horizon can change results- and those stocks will probably go down again. In addition to time horizon in that timeframe you got out at the start of this rally. Warren simply says (his actions may be different)- I don't care if it goes down and up, I care where it goes in the long run.

I am more like you in that I don't want to lose my money and I want to maximize my return in the short and long run so therefore we care about the peaks and valleys and try to time them! Whereas, Warren doesn't care although in the '60s and '70s he did exit markets almost completely.

In terms of return he is the theoretical max return on investment portfolios in the long. But he isn't the only one.