- Warren Buffett’s Berkshire Hathaway bought more than $13 billion in bank shares in the third quarter of 2018.
- It now has a $4 billion stake in JPMorgan Chase.
- Berkshire Hathaway’s investment portfolio is dominated by banks.
Warren Buffett’s Berkshire Hathaway acquired a new $4 billion stake in JPMorgan Chase, according to its third-quarter holdings report. This means that five out of Berkshire Hathaway’s top 10 holdings are banks: Bank of America, Wells Fargo, American Express, US Bancorp and JPMorgan Chase.
The holdings report underscored Berkshire Hathaway’s banking focus. It bought more than $13 billion worth of bank shares in the third quarter, including an additional investment of nearly $6 billion with Bank of America, increasing its long-held position. Added together, Hathaway holds $75.84 billion in bank stock. It is dominated by Bank of America and Wells Fargo, with stakes of $25.84 billion and $23.25 billion, respectively. JPMorgan Chase is just one of the famous stocks Warren Buffett bought and sold this year.
Why Is Warren Buffett Big on Banks?
Warren Buffet loves banks. During an October 2018 interview with CNBC, he said that Berkshire Hathaway will hold Bank of America stock “for a long, long, long time.” However, banks have been underperforming in the S&P 500 this year, so why is Buffett so confident in them?
One reason could be the profits to be gleaned from President Donald Trump’s Tax Cuts and Jobs act. With the slashed corporate tax rate, there is more profit to be had. Bank of America hauled in nearly $7 billion in profit during 2018’s first quarter.
A November 2018 Motley Fool article also assessed the current banking scene as a “neutral regulatory environment,” which means banks don’t need to strategize against regulations that could alter profits.
Another factor could be banks’ adaptability to market change.
“Banks are less cyclical than they have been in decades and have more resilient earnings streams because of improved financial discipline and risk control,” said Mike Mayo, a banking analyst with Wells Fargo, in an interview with Barron’s. He also predicted a 50 percent earnings growth for some of the banks over the next four years.
Other investors and analysts aren’t on board with Buffett’s optimism — but when has that stopped the Oracle of Omaha before?
More on Stocks and Investing
- 10 Companies You Would Never Guess Warren Buffett Loves
- Pros and Cons of Online Trading
- How to Open a Brokerage Account
- Watch: ETF vs. Mutual Fund: How to Choose Your Investments
We make money easy. Get weekly email updates, including expert advice to help you Live Richer™.