Will Bank of America's Nightmares Scare Away Warren Buffett?

Even with the troubles which have characterized over recent weeks, Warren Buffett definitively still believes in Bank of America.

May 10, 2014 at 12:32PM


Bad news piled on in April for Bank of America (NYSE:BAC), but the calendar turning to May brought a welcome endorsement of optimism from Warren Buffett and Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B).


The no good, very bad week
Bank of America had a difficult final week in April. On April 24th, Bloomberg News reported the U.S. government was seeking $13 billion in additional settlements from Bank of America -- on top of the $9.5 billion reached in March -- for the sale of its mortgage bonds before the financial crisis.

Then on Monday the 28th the bank itself announced it had misstated "regulatory capital amounts and ratios due to an incorrect adjustment," in its latest submission to the Federal Reserve, and it would suspend its plan to boost its dividend and buyback $4 billion worth of its shares. Bank of America's stock plummeted 6%.

All of this resulted in Bank of America's market capitalization falling by $15 billion in just the span of 3 trading days.

The critical endorsement
Five days later, a glimmer of hope shined on Bank of America.

At the recent annual meeting for Berkshire Hathaway, the head of the Financial Bureau at the Motley Fool, Matt Koppenheffer, noted Buffett's remarks when discussing the troubles at Bank of America:

He went on to affirm "it doesn't change my feeling about Bank of America or its management," and while there will be consequences as a result, his perception of Bank of America hasn't changed "one iota." 

The key takeaway
Berkshire Hathaway has the option to buy 700 million shares of B of A any time between now and 2021, which would give it a position 40% larger than the next closet institution, Vanguard.  Buffett is carefully watching the progress of the company which would equal his fifth largest investment, with a value of more than $11 billion.

The misteps in 2014 are troubling both for Bank of America and its CEO Brian Moynihan, and this mistake will blemish the résumé of both. 

However, the true earnings potential of the bank coupled with shares trading at just a 10% premium to tangible book, should give investors assurance these short-term difficulties won't affect its long-term returns.

Remember Buffett said his position in Bank of America was "one we value highly," and even despite the troubles, it is encouraging to know that still remains the case.


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A Financial Plan on an Index Card

Keeping it simple.

Aug 7, 2015 at 11:26AM

Two years ago, University of Chicago professor Harold Pollack wrote his entire financial plan on an index card.

It blew up. People loved the idea. Financial advice is often intentionally complicated. Obscurity lets advisors charge higher fees. But the most important parts are painfully simple. Here's how Pollack put it:

The card came out of chat I had regarding what I view as the financial industry's basic dilemma: The best investment advice fits on an index card. A commenter asked for the actual index card. Although I was originally speaking in metaphor, I grabbed a pen and one of my daughter's note cards, scribbled this out in maybe three minutes, snapped a picture with my iPhone, and the rest was history.

More advisors and investors caught onto the idea and started writing their own financial plans on a single index card.

I love the exercise, because it makes you think about what's important and forces you to be succinct.

So, here's my index-card financial plan:


Everything else is details. 

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