How Much Bank of America Stock Does Berkshire Own?

How Much Bank of America Stock Does Buffett Own? Warren Buffett confused the investment world with his announcement of not buying any stocks after COVID-19. The Oracle of Omaha took a beating on the market like everyone else (perhaps an even bigger one, losing $50 billion at the onset of the coronavirus pandemic). Global shutdowns took a toll on his investments across the board, and the firm is making some interesting moves with its cache of cash and cut off any losses.

Instead of gambling on another company, Berkshire Hathaway Inc. (NYSE:BRK.A) invested in something it knew would weather the storm – itself.

The company bought back a record-setting $5.1 billion of its own stock in August 2020, only $100 million more than the $5 billion it poured into Bank of America (NYSE:BAC) in 2011. He also spent $810 million on another 33.9 million BofA shares in July 2020, showing strong support for both of these companies.

However, Berkshire Hathaway’s stock is down, and its massive Bank of America investment is one of the biggest reasons why. BofA is one of Buffett’s biggest investments, representing approximately 11% of his portfolio.

And it’s overall value is down almost a third at a time when the firm’s investment in Apple (NASDAQ:AAPL), for example, is up nearly 50 percent in that same timeframe.

So, how much Bank of America stock does Buffett own? And what makes this bank better than Wells Fargo (NYSE:WFC) in his mind?

Let’s look further into Buffett’s relationship with the bank to answer these questions.

Buffett’s Bank of America Investment Thesis

While the timing of the post-coronavirus BofA buy seems odd, it’s in line with the $5 billion investment in 2011. It was a 10-year agreement to take control over 700 million shares, which will run out this year.

It’s also the culmination of $2.1 billion he’s invested in the company in a two-week period, and the most recent deal added another 34 million shares.

This isn’t even all it owns in the company – Berkshire Hathaway owns about 1.2 billion BAC shares, worth over $25 billion as of August 2020.

A 12 percent ownership makes Berkshire Hathaway the largest shareholder in Bank of America stock, followed by other institutional investors The Vanguard Group and BlackRock, Inc. (NYSE:BLK). For comparison, CEO Brian Moynihan, COO Thomas Montag, and CRO Geoffrey Greener own less than 5 million combined shares of the company.

The company’s biggest investment is actually in the insurance business. In fact, GEICO and other insurance subsidiaries generate the bulk of the company’s revenues. Buffett is also deeply rooted in collateral protection insurance (otherwise known as force-placed insurance) and other insurance products and services. This creates a powerful profit machine and makes Buffett bullish on the bank, despite not wanting any other stock investments for 2020.

Berkshire Hathaway vs Bank of America

It’s more than empty buzz you hear around the water cooler about Buffett’s investments. In fact, Berkshire Hathaway’s Class A share is the most expensive single stock you can buy.

It’ll cost you in the range of $300,000 to buy a single share, which is more expensive than it would cost for you to buy one share of each of the top 100 competitors behind it.

With the average house selling under $250,000, there’s a good chance it costs more than your mortgage.

To put it in perspective, one BAC share will set you back $30, while Amazon costs in the range of $2000-3000. Even its market cap is over twice the size of Bank of America and larger than any of the “too big to fail” banks.

The firm’s single largest investment is Apple, which is also known as an expensive stock. While it is just one investment company, buying Berkshire Hathaway is more like investing in a successful market index.

Although Bank of America and Apple are among Buffett’s largest investments, the insurance business is where his portfolio is heavily focused.

In fact, Berkshire Hathaway and Bank of America are the largest players in force-placed insurance (FPI) and real estate owned (REO) insurance through subsidiaries including Balboa Insurance, Newport Insurance, and American Modern Insurance.

The Trading Lesson

Overall, the lesson here is that financial services – whether in banking, insurance, or otherwise – are great investments. Bank of America is more than just a consumer bank with branches and ATMs on seemingly every corner (although it’s also that).

It’s what’s known as a universal bank that also runs Merrill Lynch, along with a variety of other commercial, consumer, and investment banking services.

When a company is in the business of making money, you can bet it’s going to do well. That’s what Buffett bet on with his first investment through Berkshire Hathaway.

The company itself was more of a revenge buy, but he leveraged it as a holding company to then purchase National Indemnity Company, an insurance company whose cash flow financed the rest of his investments.

These days Berkshire Hathaway has a diverse portfolio that includes Dairy Queen, Benjamin Moore & Co, Fruit of the Loom, Costco, Walmart, GE, GM, and more. It’s a universal investment firm, much like Bank of America but will far less regulatory scrutiny.

That’s why either business makes for a great investment at the end of the day, so long as you believe Berkshire Hathaway can turn a profit this year.

Will Berkshire Hathaway End the Year in the Black?

When the world shut down during the coronavirus pandemic, where did you turn? Companies like those listed above flourished during quarantine, and analysts who scoffed at the hits Buffett took in the beginning underestimated his financial savvy. The man could lose most his fortune and still be richer than your lifetime net worth by a large margin.

COVID-19 took a toll on Berkshire Hathaway, but the company quickly recovered. Meanwhile, Buffett addressed the problems by pouring through the books and allocating money where it needed to be. You may have noticed shortages, but you can be assured he was waving around the necessary cash to keep his empire running.

That’s why so many analysts bet on Buffett.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.