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TheStreet.com: Buffett Favors Traditional Banks

By    |   Monday, 09 July 2012 09:06 AM

Warren Buffett has avoided investing in large investment banks and instead invests in traditional lenders, which has led to his financial sector share investments greatly outperforming most other investors, TheStreet.com reports.

While Buffett invested in Goldman Sachs Group Inc. and Bank of America Corp. during the height of the financial crisis, these were preferred-share investments that were essentially guaranteed loans.

One of his largest holdings is in Wells Fargo & Co., which accounts for the second-largest stock investment for Berkshire Hathaway—at $13.2 billion—and is 7.4 percent of Wells Fargo’s shares.

Editor's Note: How You Lost $85,000 During the Last Decade. See the Numbers.

According to Seeking Alpha, Wells Fargo is the only company that Buffett has continued acquiring shares in since 2005.

And for good reason.

Wells Fargo is expected to end the year as the country’s most profitable bank, according to TheStreet.com.

Buffett has also continued investing in other traditional lenders, such as U.S. Bancorp and M&T Bank Corp., and in credit card giants, such as American Express Co., Visa Inc. and MasterCard Inc. The stocks of these firms have greatly outperformed the mega-bank stocks, such as JPMorgan Chase & Co., Goldman Sachs, Citigroup Inc. and Morgan Stanley.

While many of the mega-bank stocks doubled or tripled in value after the 2008 market crash and a March 2009 bottom, many analysts predicted that those gains could be replicated.

However, these shares turned upward on misplaced optimism of a durable trading or a deal-making surge and ultimately have underperformed.

Editor's Note: How You Lost $85,000 During the Last Decade. See the Numbers.

Since May 2009, shares of Wells Fargo, U.S. Bancorp, M&T, American Express, Visa and MasterCard have outperformed, with Wells Fargo up more than 30 percent, U.S. Bancorp and M&T both up more than 50 percent and American Express doubling.

Traditional bank stocks are affected by consumer and mortgage lending growth, and credit card companies track higher consumer spending.

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Monday, 09 July 2012 09:06 AM
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