Berkshire Hathaway (BRK.A 0.42%) (BRK.B 0.52%) is known for its massive $350 billion stock portfolio, as many of its positions were hand-selected by legendary investor CEO Warren Buffett himself.
Bank of America (BAC 0.90%) is Berkshire's second-largest stock investment. As of the latest information, Berkshire owns 1.032 billion shares of Bank of America, representing a 13.1% stake in the mega-bank. Based on the stock's price as of this writing, Berkshire's investment is worth $38.2 billion. Berkshire is Bank of America's largest shareholder.
One of Buffett's best investments
Not only is Bank of America a large investment for Berkshire, but it is one of the most successful in its portfolio.
Buffett first invested in Bank of America in the wake of the financial crisis -- in an unusual way. In August 2011, Buffett invested $5 billion of Berkshire's capital in Bank of America preferred stock that paid a 6% dividend yield, generating $300 million in annual income.
However, the preferred stock also came with warrants to buy 700 million shares of Bank of America common stock for $7.14 each. (This allowed Buffett to exchange his preferred stock for 700 million shares.)
Once Bank of America's common stock dividend increased to the point where Berkshire's dividend income would exceed the $300 million it was receiving from the preferred stock, Buffett exercised the warrants. So, Buffett paid $7.14 per share for most of Berkshire's stake -- less than one-fifth of its current stock price. Since the initial investment, Buffett has added more than 300 million shares.
Why Buffett likes Bank of America so much
In 2023, Buffett and his team unloaded stakes in several different bank stocks as several high-profile bank failures caused fear in the sector. But he never sold any of its Bank of America shares.
At Berkshire's 2023 shareholder meeting, Buffett reiterated how much he liked the bank's management (he has previously praised CEO Brian Moynihan).
Moynihan successfully navigated the aftermath of the financial crisis and turned the bank from an extremely troubled institution into one of the highest-quality, most respected institutions in the sector.
