Warren Buffett Wells Fargo Investment. Why Warren Buffett invested in Wells Fargo. Buffett bought 1.6% of Wells Fargo in 1989 and another 8.4% in 1990, at less than 5x after-tax earnings and less than 3x pre-tax earnings. His average buy-in price was approximately $58 a share – this would later become one of Buffett’s best investments, as the stock of Wells Fargo rose to approximately $270 by 2001.
Wells Fargo & Company has a substantial presence in the United States, with three major operating segments: Retirement, Brokerage, Banking and Wealth. As a bank holding company, Wells Fargo provides banking services both online and offline, for both retail consumers and customers. In addition to its core banking business, it also offers insurance, brokerage, mortgage lending, and other relevant services.
Warren Buffett Investment in WellS Fargo Rationale
At that time, Buffett believed that Wells Fargo would be a great investment for two reasons:
First, Wells Fargo had the best managers in the business. It was conservative and financially stable, and exceptionally well-run compared to its competitors. In a competitive market, the company that runs the leanest ship with superb management will enjoy a lead over its competitors.
Second, Wells Fargo was cheap when Warren Buffett first invested – it was a chaotic market in banking stocks then. The disarray was appropriate because one huge loss after another was unveiled due to losses in the real estate market. Walls Fargo set aside $1.3 billion as contingency for potential future losses. The Street reacted strongly and panic selling caused the stock to lose more than 50% of its market capitalization in a year. Buffett saw this as a great buying opportunity and indeed was proven right eventually. But this was not without a period of time when everyone else thought Buffett had gone crazy and that he was making a terrible call in investing in Wells Fargo. A study of quips from Buffett and Munger will teach you how difficult it is to call the market, and how sensible it is to demand a margin of safety so that the risk-reward is in your favor.