Billionaire Warren Buffett's decision to increase his stake in financial companies led by Wells Fargo & Co. and U.S. Bancorp and avoid subprime lenders is paying off for Berkshire Hathaway Inc.
Berkshire's bank-related investments rose 36 percent in the third quarter, while the 84-member Standard & Poor's 500 Financials Index declined 0.1 percent. Berkshire, based in Omaha, Neb., ranked as the biggest shareholder of Wells Fargo and U.S. Bancorp at the end of September, according to data compiled by Bloomberg.
"In one word, I can sum it up: patience," said William Frels, chief executive officer of Mairs & Power Inc. in St. Paul, Minn., which owns shares of Wells Fargo and U.S. Bancorp and has Berkshire stock in some client accounts.
A weighted basket of Berkshire's financial stocks rose at an average quarterly rate of 2.3 percent during the past year through September, Bloomberg data show. The S&P financials dropped by an average 11.4 percent per quarter in the same stretch. The index slumped 60 percent this year as new home sales fell to the lowest in 17 years.
As chairman and chief executive officer of Berkshire, the 78- year-old Buffett makes most of the company's investing decisions. Buffett, whom Forbes magazine calls the country's wealthiest man, declined to comment for this story.
Berkshire's financial investments have dropped 32 percent since Sept. 30, excluding a $5 billion investment in Goldman Sachs Group Inc., reducing Buffett's profits. The S&P financials index fell 41 percent in the period.
Berkshire cuts BOA stakeBerkshire's third-quarter holdings, released this month, show the company trimmed its stake in San Francisco-based Wells Fargo by a tenth of 1 percent since June to 290.4 million shares, valuing the investment at $7.8 billion as of Tuesday. Berkshire increased its holdings of Minneapolis-based U.S. Bancorp by 6.3 percent to 72.9 million shares. Berkshire kept its stake in New York-based American Express Co. at 151.6 million shares, remaining the company's biggest investor.
The only financial company Berkshire moved away from in the third quarter was Charlotte, N.C.-based Bank of America Corp., cutting its stake to 5 million shares from 9.1 million. Bank of America did what Buffett refused to do — buy Countrywide Financial Corp., the subprime lender plagued by tumbling home prices and record foreclosures.
"The fact he was smart enough to take a pass on so many deals that have gone sour indicates that he correctly saw that things were going to get worse," said Whitney Tilson, managing director of New York-based hedge fund T2 Partners LLC, which has been adding to its Berkshire holdings.
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