Warren Buffett Used These Red Flags To Weed Out Bad Bank Stocks From Investing Portfolio
Written by
Laura Gariepy
Edited by
Nicholas Morine
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The banking business has fallen out of favor with 92-year-old investor and Berkshire Hathaway CEO Warren Buffett. By the end of last year, Buffett’s banking, financial, and insurance stocks accounted for less than 25% of his equity portfolio — down from 41% at the end of 2019.
Which Stocks Warren Buffett Dropped
Buffett unloaded all of his shares in the following banking institutions, per Markets Insider:
- JPMorgan.
- Goldman Sachs.
- Wells Fargo.
- M&T Bank.
- PNC Financial.
He also sold off part of his stake in BNY Mellon and US Bank.
Why Buffett Sold His Shares
The investor sold his bank stock for various reasons, including:
- Reckless risk-taking by bank leadership.
- Deceptive financial reporting practices, such as artificially inflating profits.
- Using customer funds (which can get withdrawn at any time) to purchase long-dated government bonds and mortgage-backed securities.
“I don’t like it when people get too focused on the earnings number, and forget what in my view are basic banking principles,” Buffett said. “I did think that banking could get in a lot of trouble just because of the kind of things that they did… I didn’t like the banking business as well as I did before.”
According to Markets Insider, Buffett didn’t point fingers at any particular bank, so it’s unclear which financial institutions were exhibiting red flags.
Warren Buffett’s Advice to You
The investing guru has offered some of his best money tips as of late, however, including:
- Learn about personal finance. The more you know, the better.
- Build positive money habits. They will serve you for a lifetime.
- Avoid credit card debt. It will cost you a lot of money in interest.
- See money management as a long game. You have to continuously make sound financial choices and build wealth over time.
Buffett takes his own advice. Despite having more money than he will ever need, the billionaire lives frugally, residing in the same house for decades, clipping coupons and enjoying affordable hobbies like playing bridge.
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