Buffett hands more than 33 billion Bank of America are net profit!

Warren Buffett continues to sell his holdings in Bank of America.

According to the Form 4 filing submitted last week, Berkshire Hathaway sold an additional 22.3 million shares of Bank of America stock between September 17th and 19th, recovering $896.1 million in cash at an average price of $40.23 per share.

After this latest sale, Berkshire Hathaway's ownership stake in Bank of America has been reduced to 10.8%. Once the stake is reduced to below 10%, the company will no longer need to disclose its reduction actions in a timely manner.

Since initiating the "sell" button on July 17th, Buffett has sold Bank of America stocks worth about $8 billion, accounting for nearly 20% of his holdings.

Buffett has not made any statement regarding the reason for selling.

The only noteworthy response came from Bank of America CEO Brian Moynihan.

As the "involved party" and a CEO often praised by Buffett, Brian stated at a financial conference hosted by Barclays Bank on September 10th that he had not inquired about Buffett's sales over the past two months, "So I don't know exactly what he's doing, because frankly, we can't ask, and we won't ask."

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Brian added, "But on the other hand, the market is absorbing the stocks, which is part of the daily trading volume... life will go on."

The CEO also sincerely expressed that when investors were filled with anxiety about the aftermath of the 2008-2009 financial crisis, it was Berkshire Hathaway that first invested $5 billion in 2011, and Buffett was "a great shareholder" who "stabilized our company when we needed it."

At that time, Berkshire Hathaway obtained common stock warrants with this $5 billion preferred stock investment. After exercising the warrants in 2017, they exchanged the preferred stock for 700 million common shares, with an actual price of only $7 per share.Berkshire Hathaway subsequently purchased an additional 300 million shares, with each share priced close to $30.

In an episode of the "Rubinstein Show" in 2019, Brian Moynihan actually recounted the behind-the-scenes story of Warren Buffett's investment in Bank of America.

This is an interesting dialogue.

Rubinstein asked Brian, "During the financial crisis, there were times when the company faced operational difficulties, right? Who did you need to call for help like Buffett, was it difficult when you picked up the phone, did you proactively offer him any conditions?"

Unexpectedly, Brian replied calmly, "It wasn't me who called him, it was he who called us."

"And he called the customer service main line directly, asking them to transfer the call to me, but customer service can't transfer every call directly. Eventually, it was Berkshire Hathaway's CFO who managed to find me, allowing us to connect."

Buffett said he wanted to invest in us, and my response was, "We don't need capital injection." He said, "That's why I'm calling, you need to stabilize the stock price, and my funds can help you with that."

"It was in 2011, when the U.S. government was facing default, with all sorts of uncertainties, including legal risks from mortgages and the like."

"Our first call was on Monday, we signed the agreement on Tuesday, and by Thursday, we had the money."

"That's just how he operates.""Anyone can buy in sync with him in the secondary market. He not only has courage, but also has $5 billion in cash that no one else had at the time."

Later, this event was dramatized into an investment decision made by Buffett while taking a bath. It is said that before communicating with Brian on the phone, Buffett was in the bathtub, contemplating the potential opportunities of Bank of America, and then decided to invest $5 billion.

Buffett sometimes humorously teases himself with this, indicating that although his investment decisions are well-considered, they do not necessarily take place in a traditional office setting.

Buffett's collaboration with Brian has been sweet. If you include the dividend income of over $6 billion over the years (a rough estimate, including preferred stock dividends from 2011-2017 and subsequent common stock dividends), Buffett has already recouped all the costs he has invested in Bank of America, and now holds 836 million shares worth over $33 billion, all of which are profits!

Therefore, everyone speculates that Buffett will not really sell all of Bank of America, he is just cashing out a part of the substantial profits. After all, when he started selling, Bank of America's stock price had already risen by more than 30% this year alone.

Buffett and Brian have had very few opportunities to appear on stage together in 13 years. Smart investors (ID: Capital-nature) found a precious video of them attending a charity event at Georgetown University in 2013, translated the valuable exchanges, and shared them with everyone.

Brian repeatedly said that Buffett is a "true rock star."

Washington Roots

Brian: It is said that Washington is one of your hometowns, what is your connection with this place?

Buffett: Sixty-six years ago, I delivered newspapers at Georgetown Hospital in Washington, which was an easy place to receive tips. I have many fond memories of Georgetown. During World War II, I was also in Washington, where my father was a congressman, and that was the most united time in America that I have experienced in my life.Brian: You started investing at a very young age. What fascinated you about it?

Buffett: Indeed, it began when I was 11 years old. I spent five years delivering newspapers and saved up $120 to buy my first stock. On Saturday mornings, I would go to my father's office and read books related to investing. I read every book I could get my hands on.

I truly enjoyed this activity. If it were baseball or another sport, there would be physical limitations, but investing is not affected at all even if I have problems with my legs and feet.

What keeps me engaged in this work is the joy it brings, and the opportunity to work with people I like. As people say, I go to work dancing, but I'm already 83 years old, so it's probably best not to ask me to demonstrate that here.

Philanthropy

Brian: Let's talk about your philanthropy. How did you come up with the idea of doing this with the Gateses?

Buffett: Three or four years ago, we asked David Rockefeller to host a private dinner in New York with 16 to 18 attendees, where we invited Oprah Winfrey, Mayor Bloomberg, and others. After listening to everyone's ideas about philanthropy, we decided to invite more wealthy individuals to make a commitment to donate at least half of their assets to charity.

This is difficult for some people because it's like facing death and planning for what comes after. At such times, I would advise them, if you don't make a decision at 70, will you have better decision-making abilities at 95?!

People need the power of role models. We collect letters from Rockefeller and others and put them on our website; they are truly worth reading. Of course, we would prefer to attract young people like Zuckerberg, leveraging their influence.

Actually, what I want to emphasize is that I admire more the ordinary people who donate a few dollars to us every weekend. This money is what they could have used to go to the movies or eat out, and they actually give up something that is useful to them.For me, I already possess everything that can be bought with money, so donating has no impact on me. The stocks I hold are of no use to me, but they might be put to good use in things like vaccines, education, and so on.

Brian: Why choose to collaborate with the Gates couple?

Buffett: Originally, my wife and I planned to use the remaining money for society when we were in our twenties. I thought she would outlive me, after all, she was younger, and women tend to live longer, but she passed away in 2004, so I had to change the plan.

Specialization is key, and I wanted to find people who are very good at giving away money. They are younger, energetic, intelligent, and share the same goals in philanthropy as I do. The fundamental principle of the Gates Foundation is that every human life has equal value.

I have established sizable foundations for each of my three children, and you can find the relevant information on the Berkshire Hathaway website. My advice to them is that if everything they do in philanthropy succeeds, then they have done it wrong, because important things are often difficult.

Brian: You require them to spend all the money within ten years after your passing?

Buffett: Yes, I don't think I can pick a great-grandchild to accomplish this just because he shares the same last name as me.

Brian: You also do some different things in philanthropy, such as the East Lake Golf Project in Atlanta, where you and Tom Cousins have done a lot of work for the long-term development of different communities.

Buffett: We hope to use a holistic approach, over a decade, to develop brand-new communities and spread this practice. There's also Julian Roberts, but mainly Tom Cousins.

About a week ago, he published an article in The Wall Street Journal describing this, and he is an amazing person.When you have the opportunity to collaborate with high-quality, energetic, and intelligent individuals, and to invest your own capital, you will seize the opportunity.

Economy

Brian: What is your view on the current economy?

Buffett: Five years ago, we experienced an unprecedented panic. We were fortunate, I'm serious. We were on the brink of disaster, and I credit Ben Bernanke, Hank Paulson, and Tim Geithner, especially President Bush, for whom I had voted.

If you've studied economics, you'll know that Adam Smith proposed the famous theory of comparative advantage, and Keynes talked about animal spirits. But President Bush, in just a few words, made what I consider to be the greatest economic insight in history.

In September 2008, he came out of the White House (indicating his support for the $700 billion bailout plan), and he said, "If money isn't loosened up, this sucker could go down."

Now businesses are back. Many companies, including ours, are making record profits. But the American public as a whole has not come back.

The just-released Forbes 400 list shows that the combined wealth of these 400 individuals is $2 trillion, which was $300 billion twenty years ago.

If you read today's newspaper, you will find that the median income is the same, in terms of real purchasing power. It has not changed since 1989, and inequality is growing larger.

The wealthy are living very well, doing very well in business, with very high business profit margins, and the commercial returns on tangible assets are astonishing.But for the majority of people in our country, if you take the bottom 20% of households, there are about 60 million people, and the highest level is only $22,000, how can they support several children?

We have an economy with a per capita GDP of $50,000, and we can produce a large amount of goods and services, but we have not yet learned how to share the wealth we have with everyone.

You think about it, people are very dissatisfied with an annual increase of 2%, but the population grows by 1% each year, which means a per capita real growth rate of 1%. Over 20 years, a generation's time, per capita GDP has increased by 20%, which is not bad for a generation.

But the question is how it is distributed. We must ensure that everyone participates to a reasonable extent. We do not want equal outcomes, but we also want a basic level that satisfies everyone.

Firms that make good use of artificial intelligence will initially be relatively few, unless we see a large number of companies using large language models for truly industry applications that can leverage this advantage.

Lessons from 70 years of experience

Brian: As someone with 70 years of investment experience, what do you think are the lessons we have learned from the past few cycles?

Buffett: The lesson is that people will continue to make the same mistakes.

When the real estate bubble bursts, people will panic and want to flee. Although the circumstances vary each time, humans will maintain the same behavioral patterns.

So we will encounter recessions every so often, and occasionally there will be panics, but not all recessions come from panics.Good news is that in the 20th century, we went through two World Wars, the Great Depression, the Great Influenza, the Cold War, atomic bombs, and the Dow Jones Industrial Average rose from 66 to 11,497 points.

I bought my first stock at the age of 11 in the spring of 1942, a few months after the Pearl Harbor incident. We suffered a heavy blow in the Pacific, and the situation in Europe was not optimistic, but we have come through it.

Brian: What is your most optimistic view of the next decade?

Buffett: I just imagine going back to 1789, hundreds of years ago, and there was nothing here.

We eventually owned a quarter of the world's GDP, and we want to figure out how to better utilize these resources in the process of moving forward. You don't have to worry about systemic issues; you will have cyclical recessions and occasional panics.

In the fall of 2008, I wrote a column in The New York Times, saying that this country would come back.

Brian: When is your best investment timing?

Buffett: I always think the best investment timing is tomorrow because investing will always happen in very interesting things.

In 1950, when I was 20 years old, I first came into contact with GEICO, an insurance company. I was following Ben Graham, who taught value investing at Columbia University, and I found out that he was the chairman of GEICO.

I went to this company on a Saturday, and Lorimer Davidson, who was working overtime alone, spent four hours teaching me, a stranger, all about insurance.When you reach my age, you will remember the help you received from different people, because no one can accomplish investing alone. Just as Obama said during his campaign, no one does things by themselves. We have all enjoyed the shade of trees planted by others.

In 1976, GEICO Corporation mistakenly calculated its reserves and faced bankruptcy. I bought one-third of the shares on the market in a very short time, and by 1995 it had turned into one-half (they would repurchase shares).

I went to see Mr. Davidson, who was already 96 or 97 years old, and the cost of the stocks in his hands was almost zero. I said, if I propose to buy now, you will have to pay a large amount of tax, so if you disagree, I won't mention it.

He said to me, Warren, this has been my lifelong wish.

And that's how we bought the rest of the company. He was a great man.

Question and Answer Session

Student 1: Are there any recommended stocks? After all, we students also need to make some money.

Buffett: I bought Ben & Graham's "The Intelligent Investor" in 1949. I don't remember how much I spent, but I think, apart from two marriage licenses, this is the best investment I've made in my life.

Having the right framework is very important. You need to have a reasonable investment method. Graham's method is simple, but some people accepted it, and I accepted it right away, while most people did not.

If you have the correct investment philosophy, you will find opportunities in the next 20, 30, 40, 50 years.Frankly speaking, you were most likely to find them during periods like five years ago, when the market was in a panic and stocks were occasionally sold at foolish prices, with most stocks selling at very foolish prices at some point.

You don't need a high IQ to recognize that they are cheap, but you do need the courage to stand out and take action.

I often say that in investing, if you have an IQ of 160, give 30 points to someone else, because you don't need it.

I realized early on that you don't need to be very smart, but you must have the right mindset: you must be able to ignore what others say, look only at the facts, and then decide whether the stock is being sold at a price of X or 2X.

When you can't find such opportunities, it's better to do nothing at all.

Brian: It's just fine to buy Bank of America now.

Student 2: You have invested in China, South Korea, Israel, and recently interacted with 3G Capital. Are you planning to enter Brazil?

Buffett: I don't know where I'm going to invest next, and that's what makes my job interesting. I'm not joking.

If you play golf and every shot goes into the hole, you would quit, and the game would no longer be fun.

So I like the state of not knowing what I'm going to do next.You mentioned that I made an investment in Israel in 2006 (note: the first significant overseas investment), which was after I received a letter. Prior to this, I had never heard of the company IMC (ISCAR Metalworking) or the Wertheimers.

The letter was a page and a half long, stating that if their family wanted to sell the company, the only company they would want to sell to was Berkshire Hathaway. If I was interested, they would be happy to come from Israel to talk with me.

I replied to them via email, and they came over quickly. We bought 80% of the company, which I had never seen before, for $4 billion.

Later, I actually visited the factory, and I had never seen such a (clean) industrial park. They said this was why they wanted me to see it with my own eyes. I told them that if I had seen it first, I would have paid more.

Regarding Brazil, I met Jorge Paulo Lemann from 3G Capital when I was on the Heinz board.

He outlined his proposal for Heinz to me during a flight, and the opportunity to acquire an outstanding company like Heinz was a great opportunity for us.

Let me tell you another impressive thing. After our discussion, he sent me a one-page paper describing how both of us could advance corporate governance. He took into full consideration the interests of both parties, and I didn't need to change a single word. Who wouldn't want to deal with someone like that?

Student 3: You mentioned that people make the same mistakes during boom and bust cycles. Recently, there has been an explosive growth in derivatives, and you once referred to derivatives as weapons of mass destruction. Do you think this will lay the groundwork for the next financial crisis?

Buffett: If you look at what happened in September and October of 2008, you will find that something unusual occurred.

The Federal Reserve injected $85 billion into AIG. If they hadn't done so, our world would be very different.Hank Paulson provided a guarantee for money market funds when 30 million Americans panicked about them, and when $300 billion flowed out of non-government money market funds in three days, 125% of it, which is $375 billion, went back into government funds, almost equivalent to the deposits of Wells Fargo or Wachovia at the time.

When a panic occurs, the only thing that can stop it is someone capable of doing whatever it takes, which is what Bernanke and Paulson did. And with the support of the President, that's the way to end a real panic.

Anyway, the country will get through it, but it's hard to legislate against people's foolish behavior, especially in the past few years where foolish behavior has proven to be very profitable.

People all think they are Cinderella at the ball, enjoying everything wonderful while believing they will leave at 11:58. But there is no clock on the wall, and they are still dancing.

So panic and everything will happen again. When it does, people like me will buy.

Student 4: Bernanke is leaving office next January. Whoever takes over, do you think they should continue the Federal Reserve's controversial QE program? If so, for how long?

Buffett: I think they should follow Bernanke's approach. He said he would continue to do so until he sees more improvement.

Economically, I think he is a bit disappointed, well, not particularly disappointed, but indeed the pace of economic recovery in the past few years has been a bit slow. A few days ago, he also said he would further extend the duration of (quantitative easing) and continue to observe until he sees the results.

He doesn't know the timing, but he would say under what conditions he would make a change.

The economy is improving... We are conducting an unprecedented experiment; I mean, the Federal Reserve's balance sheet is as high as $3.5 trillion, and usually, it is easier to buy securities than to sell them.Brian: But Warren, as we discussed earlier, doing this means that the economy has to grow faster.

Buffett: He's under no pressure.

You have to understand that the Federal Reserve is the largest hedge fund in history. I mean, you hold a trillion dollars in funds, funded by currency and circulation, at no cost.

Then you provide about a trillion dollars to banks at an interest rate of 25 basis points. It turns out that the Federal Reserve has a profit of 80 billion dollars or a scale like that.

The Federal Reserve is the fourth largest contributor to the U.S. government's revenue, and it is currently the case, but it was not a few years ago.

So the Federal Reserve is under no pressure and can choose its own timing. If the Federal Reserve is led by wise people, I think Bernanke is wise, and I hope his successor can handle this issue well.

Student 5: Munger said, "Warren and I always stay away from industries we don't understand." So you have See's Candies, railroads, and Coca-Cola.

But the world is changing, and we live in a new era. Maybe in a few years, everyone will pay with iPhones, and American banks will no longer issue credit cards...

Buffett: What should old-fashioned people like me do?

Student 5: Well, there are too many things you don't know.Brian: He would take out a flip phone to show you.

Buffett: Here's my new phone. I just replaced the telephone that Alexander Graham Bell invented. (As he speaks, he takes out his flip phone from his pocket, and the audience applauds loudly)

Student 5: My question is, new technology is changing everything, and you can't just stand by and only stick to tradition. In this situation, how do you evaluate and identify excellent companies? What is the most important thing?

Buffett: The most important thing is to make a decision, to be able to determine which things you can make wise decisions about; and which things are beyond your capabilities, which you can't assess.

You don't have to be right about thousands of companies. You just need to be right about a few companies.

On July 5, 1991, I met Bill Gates in Seattle.

Bill said, you must have a computer. I asked, why? He said, well, you can use it to file taxes. I said, I don't have any income, and Berkshire doesn't pay dividends. He said, well, you can track your investment portfolio. I said, I only own one stock.

Uh, I mean, he told me that computers would change everything.

I said, will this change whether people chew gum? He said, probably not. I said, then will it change what kind of gum people chew? He replied, not really.

I said, then I'll continue with gum, and you continue with computers. I don't need to know everything; I just look for opportunities in the businesses I understand.In a business like banking, which I do understand, I have indeed invested. I am quite adept with numbers and business matters.

Ted Williams wrote a book called "The Science of Hitting."

He included a chart that illustrates the strike zone where one can swing the bat. He divided the strike zone into 77 squares, each the size of a baseball. He said that if I only swung at the balls that entered my sweet spot—the chart showed his batting average in these areas was .400.

If he had to swing at those low and away balls, even if they were within the strike zone, his batting average would only be .230.

He said the most important thing in hitting is waiting for the right pitch to swing at.

However, Ted had a disadvantage; when the count was 0-2 or 1-2, even if the ball landed in an area where he was not proficient, he had to swing.

In investing, there is no such thing as being "struck out." People can pitch Microsoft, General Motors... all sorts of stocks at me, and I don't have to swing; no one will call me out for not swinging. I am only recorded as a failure when I miss the pitch I swung at.

So, I can wait there, observing thousands of companies day after day, and only when I see a company I understand and like the price, will I swing. If I hit it, that's great; if I miss, it's just a strikeout.

Thus, it's a game with a significant advantage.

Believing that you must have an opinion on everything is a grave mistake. You only need to have ideas about a few things.In fact, I've told students that if they graduate with a punch card that has 20 holes, representing all the investment decisions they can make in their lifetime, they will become very wealthy because they will treat each decision with great care.

You don't need to make 20 correct decisions to become very wealthy. You know, four or five correct decisions might be enough.

So I won't worry too much about things I don't understand. If you can understand some emerging businesses and identify opportunities within them, such as recognizing the opportunity with Amazon, that would be quite remarkable. What Jeff Bezos has done is a tremendous achievement, and I pay tribute to him. He is an outstanding businessman and a good person.

But could I have foreseen his success while ten others would not succeed? I'm not that good. Fortunately, I don't need to be.

I don't need to have an opinion on Amazon. I can make my own judgments on Bank of America and Coca-Cola. Coca-Cola has been around since 1886. Today, 1.8 billion 8-ounce servings of Coca-Cola products are sold every day.

Now, if you could earn an extra penny from each serving, that would be $18 million per day. Multiplying $18 million by 365 days gives you $7.3 billion, or $6.575 billion (Note: He just blurted out these numbers, and he's 83 years old).

So, Coca-Cola alone could generate $6.575 billion in revenue per year just from an extra penny.

Do you think Coca-Cola is worth an extra penny over Joe's Cola? I believe so. I have about 127 years of historical data to prove it. This is the type of decision I like to make.

You might have a completely different area of expertise and may know more about emerging businesses than I do. If you can understand a few of them and understand their future, you can become very wealthy.

But luckily, I don't need to. If we invest in Heinz, it's because I see people pouring ketchup on hamburgers and potatoes, and I believe this consumption pattern will continue.Moreover, some products are capable of global circulation, while others are not. Chocolate bars, for instance, do not easily sell across national borders. If you look at Cadbury chocolate bars from the UK, they do not perform well in the US market; similarly, Hershey's chocolate bars from the US do not fare well in other regions. Soft drinks, on the other hand, can circulate globally, as can tomato ketchup.

I have a preference for products that can circulate across countries. Thank you very much.