Buffett likes Bank of America at $24.
I was doing some insider filing research tonight, as Warren Buffett is one of the investors I like to clone, and I saw that Berkshire Hathaway bought around 33.9 million more shares of Bank of America (BAC) between July 20, 2020 and July 22, 2020 for what looks like about $24 a share.
You can see the SEC Form 4 filing here.
BAC is down 31% from its recent high in late December.
This purchase looks like it was around a 4% increase in Berkshire’s Bank of America holdings, compared to the end of the first quarter, and overall this purchase was a little bit over $800 million.
We don’t know for sure if it was Warren Buffett, Ted Weschler, or Todd Combs who made the purchase, but given how large Berkshire’s Bank of America investment is and what Buffett has said about Bank of America, I think it is extremely likely that this was a Buffett purchase, but you never know for sure unless he tells us.
Bank of America is a small holding in my portfolio and mostly I bought it to a) clone Buffett and b) use it as an opportunity to learn more about the banking business and try to put banks squarely inside my circle of competence.
I understand how banks make money, I understand how banks can get themselves in trouble and lose money, but what I don’t understand is a) what valuation banks should trade at, meaning, what’s an expected or normal valuation for a bank, in terms of price to book and price to earnings, and b) I also don’t understand how to predict if a bank is going to grow deposits and earnings in the future.
Buffett has some great stuff on banks in his shareholder letters. The letters where Buffett wrote about his purchase and stewardship of The Illinois National Bank & Trust and the manager there, Gene Abegg, who would count the number of tissue sheets on toilet paper rolls or something like that, come to mind.
Banking seems like a competitive business that’s getting disrupted by technology. The big banks make banking so convenient, so easy, and potentially so sticky with their technology moats, that it’s difficult to see how smaller, regional banks attract business. Then again, I’m sure there’s some regional bank out there with a $300 million market cap that might grow and grow and one day get acquired for $3 billion and that 10 bagger is out there waiting to be found.
So my plan is to keep learning more about the business of banking, to get banks squarely inside my circle of competence, and to keep searching for that home run bank stock that I might find one day.
Until then I’ll keep in mind that Buffett bought more Bank of American at $24, and as my saying goes, if it’s good enough for Buffett, it’s good enough for me.