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Rupert Hargreaves
Rupert Hargreaves
Articles (1413)  | Author's Website |

Why Isn't Charlie Munger Selling Wells Fargo?

As Warren Buffett exits the bank, Munger is holding firm

November 13, 2020 | About:

A short time ago, the Daily Journal Corporation (NASDAQ:DJCO), where Charlie Munger (Trades, Portfolio) sits as Chairman, reported its 13F with the SEC. Like all significant investment vehicles with more than $100 million in assets under management, the Daily Journal has to report its holdings every quarter.

As usual, this time around, there was no change to the portfolio, which is managed by Munger himself. This was hardly surprising, but what is notable to me is the fact that the Journal's second-largest position remains Wells Fargo (NYSE:WFC).

Munger vs. Buffett

Munger and Warren Buffett (Trades, Portfolio) have worked closely for the past several decades, sharing investment decisions and ideas and making some of the most significant decisions at Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B).

Over the past 24 months, Buffett has started selling Berkshire's holdings of Wells Fargo. According to Berkshire's 13F filings, the conglomerate sold off 7.8% of its holding in the bank in the third quarter of 2019 before accelerating the sales in the fourth quarter. By the end of 2019, the number of shares the conglomerate owned in the banking group had dropped from around 410 million to 323 million.

It seems as if the Oracle of Omaha continued dumping his stake in the banking group in the first half of 2020. By the end of the second quarter, Berkshire owned just 238 million shares. We will have to wait to see if the selling continued in the third quarter of the year.

There has been a great deal of speculation about why Buffett decided to take this course of action. Some had speculated that the Oracle was displeased with management's decision to appoint a Wall Street insider to the CEO position when he had recommended finding someone from outside the profession to bring a fresh pair of eyes to the situation. Others have speculated that Buffett was distressed by the fake account scandal and was concerned that it had done irreparable damage to the Wells franchise.

Whatever the reason, it's clear that Buffett has made the decision to significantly reduce his exposure to the bank. This is notable because Wells was once one of the largest holdings in Berkshire's portfolio. Buffett had repeatedly praised the business over the years, and he's always said when he buys a stock, it's forever. The fact that he has been selling off such a significant position suggests the business has made some significant mistakes in his eyes.

As such, one might expect Munger to follow the same approach. He hasn't. This is curious in itself, and I think it highlights a couple of differences between these two investors' strategies.

When it comes to long-term investing, Munger has a bit more of an edge over Buffett. We only need to look at the composition of his personal and the Journal's portfolios over the past few decades to see evidence of this fact. Across the two portfolios, since around 2008, Munger has only owned seven investments. Berkshire, under Buffett, has bought and sold significantly more.

Munger is much happier to sit on his hands and do nothing. We know that in several decades of reading Barron's magazine, the billionaire only bought one stock. It went on to produce a return many multiples of the initial investment.

I also believe Buffett is concerned much more about reputational issues than his partner. That's understandable considering the fact that the Oracle of Omaha is such a legendary figure in the investment world.

The bottom line

I think it is interesting to note that these two well-known investors are following different paths, despite their similarities and history together. That's not entirely unreasonable. After all, Munger convinced Buffett to change his investment strategy away from deep value towards quality in the first place.

Disclosure: The author owns shares in Wells Fargo and Berkshire Hathaway.

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About the author:

Rupert Hargreaves
Rupert is a committed value investor and regularly writes and invests following the principles set out by Benjamin Graham. He is the editor and co-owner of Hidden Value Stocks, a quarterly investment newsletter aimed at institutional investors.

Rupert holds qualifications from the Chartered Institute for Securities & Investment and the CFA Society of the UK. He covers everything value investing for ValueWalk and other sites on a freelance basis.

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