JPM, BAC

BAC Clone: Buffett and Munger
JPM Clone: Greenberg and Buffett

“As Mohnish had pointed out Buffett’s involvement with banking stocks went back as far as 1969, and he’d almost never lost money on a bank bet. Given that nobody is a better investor in banks, Buffet’s seal of approval meant a lot. For good measure, at least half of Bank of America’s rivals had fallen by the wayside, leaving the company in an even stronger position. Smaller banks would struggle to compete, given the mounting cost of technology in the banking sector. And the legal risks facing the bank seemed lower than most people realized: after all, the litigation over the Exxon Valdez oil spills is still going on after 25 years. So it seemed likely to us that the banking sector could drag out any lawsuits for many years, providing ample time to cover the potential cost of any claims. The key, perhaps is that many investments are acutely uncertain, but not as risky as they might at first seem. Low risk, high uncertainty.”

Guy Spier “The Education of a Value Investor”

“Mohnish was more comfortable with the inferences he could draw from partial information. As he put it to me, it counted for a lot to know that Buffett, Munger, Sokol, and Li Lu all considered the stock a winner. Mohnish’s willingness to act on incomplete information enabled him to buy BYD at a much lower price than what I paid once the information was more complete.”

Guy Spier “The Education of a Value Investor”

I don’t want to pretend that I have any special insights or am engaging in second level thinking when it comes to banks. I can’t dissect their trillion balance sheet and during the financial crisis, I couldn’t have distinguished

BAC, WFC, C, JPM
from
Countrywide, AIG, Lehman, Wachovia, SAC Capital, Bear Stearns.

Bill Miller couldn’t either. He continued to increase his positions in Countrywide, AIG, Wachovia, Bear Stearns, and Freddie Mac during the 2008-2009 crisis.

I am in Banks because Buffett and Munger(Daily Journal) are in them. I am never going to catch up to them in terms of their insight, knowledge, wisdom, experience etc.

Here’s the basic elevator pitch that everyone else already knows.
1. Strong balance sheets
2. Returning cash back to shareholders in the mid teens via
buybacks/dividends
3. Sticky customer base
4. Too big to fail
5. Small banks can’t keep up with tech
6. Deposits continue to grow ever year
7. Historically low valuation

I chose JPM and BAC because of Buffett’s high conviction in BAC and JPM’s management in Jamie Dimon, which was the only big bank that tried to refuse TARP.

For a quality proper write up, read John Huber’s from Saber Capital Management.

https://sabercapitalmgt.com/wells-fargo-not-all-boring-ideas-turn-out-to-be-boring/

This coupled with Buffett and Munger’s Imprimatur is enough for me to invest in banks.

Work hard to make life as easy as you can.