Warren Buffett's Berkshire Hathaway may have virtually eliminated its JPMorgan position last quarter because it wanted to double down on its favorite bank stock, according to Adam Schwartz, the founder and investment chief of Black Bear Value Partners.
"JPMorgan is relatively more expensive than Bank of America and Berkshire has typically preferred concentration in their best ideas," Schwartz told Business Insider this week. Indeed, Berkshire invested more than $2 billion into Bank of America stock last quarter, ending the period with a $24 billion position.
Berkshire clearly ranks among Schwartz's best ideas. Buffett's conglomerate has been one of his fund's five biggest long positions since he established it four years ago.
Berkshire almost halved its Wells Fargo stake last quarter as well. Buffett and his team likely soured on one of their oldest and largest holdings because of a challenging backdrop for banks, the reputational damage from its fake-accounts scandal, and federal restrictions on its operations, Schwartz said.
"Wells Fargo has a very deep hole to dig out of," he said. "The combination of low interest rates, an asset cap which limits the volume of loans, and increased expenses for compliance makes this investment very hard."
"It would be hard to imagine Berkshire investing in Wells Fargo in its current state as a new prospect," the Black Bear boss continued. "I'm not totally surprised that they have dramatically reduced their holdings."
Schwartz cheered Berkshire's decision to ramp up share repurchases to a record $9 billion last quarter.
"I love that they are buying in their shares," he told Business Insider. "The stock is cheap, and their businesses are of a super-high quality."
The value investor also credited Buffett and his team with patiently deploying Berkshire's vast cash reserves this year, despite many investors calling for them to spend faster. "To the turtle goes the race," he said.
Schwartz pointed out that Berkshire moved quickly enough to strike deals with Dominion and Scripps last quarter, despite companies enjoying much easier access to funding than they did during the 2008 financial crisis, when Buffett stepped in to fill the lending void.
The Black Bear boss also cautioned that the long-term economic impacts of the pandemic remain unclear. However, he expressed confidence that Berkshire will prosper whatever happens.
"I trust their disciplined decision-making will benefit us as shareholders for a long time to come," Schwartz said. "If things get weak again, Berkshire will get more calls and have ample cash to act."
