An old time look at Wells Fargo Bank and a famous investor, not named Warren Buffett.
It’s always interesting studying the investment write-ups of well-known investors. No matter how old these reviews are, or how far the investing star has since fallen from grace, these write-ups always provide an interesting insight into professional investors’ thought processes.
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Bruce Berkowitz was one of the most high-profile fund managers on Wall Street in the 2000s. Named mutual fund manager of the decade in 2010, at its peak, Berkowitz’s Fairholme Fund managed around $20 billion. Since hitting this high water mark in 2011, performance has deteriorated, and investors have withdrawn 89% of that cash.
Wells Fargo nightowl / Pixabay
Still, there’s no denying that Berkowitz is a skilled investor. Over the decade to 2010, his fund returned more than 13% annually, which considering the investment environment during this period, is impressive.
Fairholme On Wells Fargo Bank
One of the companies that helped Berkowitz make a name for himself is Wells Fargo Bank. The fund manager started buying Wells in the early 1990s when short-sellers were arguing that commercial real estate loans would cripple the bank. They were wrong, and over the next ten years, the stock rose more than 900%.
At the end of 1992, Berkowitz gave an interview to the Outstanding Investor Digest, revealing why he liked Wells Fargo Bank and his outlook for the stock.
Berkowitz was so convinced about the company’s prospects, at the time of the interview he’d invested 33% of his liquid net worth in Wells Fargo Bank, on what amounted to nothing more than a hunch:
“Wells Fargo will determine whether I have any competence in investing or not. Wells is the watershed. What’s incredible about Wells is that it isn’t depending on any proprietary investigative work or keen sense of analysis. This is strictly a businessman’s sense. You’re talking earnings flows. You’re talking human nature. You’re talking about “This too shall pass.” You’re talking about “The angels fall. And those that are fallen shall rise again.” And human emotion and business cycles and how equilibrium is change.”
When pressed further by the interviewer, Berkowitz added some more color:
“It’s a simple case of a bank with tremendous earnings power. And as a businessman, I’ve gone into it the way good businessmen go into businesses-- in recessions-- because that’s the time to do it. The argument’s simple. Wells has had fantastic earnings power in the past. And I just don’t see any reason why it won’t continue. In fact, it’s growing. Its earnings power has been disguised by the intense provisioning for loan losses. But when the provisioning gets back to a normal level, you’ll start to see that incredible earning power come down to the bottom line. And it’s as simple as that.”