Why did Warren Buffett sell Wells Fargo and buy Verizon?

We recently had a glimpse of Berkshire Hathaway‘s (NYSE: BRK.A)(NYSE: BRK.B) equity portfolio as it stood at the end of 2020, and a few moves surprised many investors. Two in particular are Warren Buffett’s continued elimination of the former Berkshire giant Wells fargo (NYSE: WFC) investment, and the decision to put billions of dollars to work in the telecoms giant Verizon Communications (NYSE: VZ).

In this fool live Video clip, recorded on February 22, Fool.com contributor Matt Frankel, CFP, and Focus on industry Host Jason Moser explains why Buffett could have made those two great moves.

Matt Frankel: Let me see, said Sanjay, “For Matt, why could Buffett have gotten bitter about Wells Fargo after being there for so long? incentive structures have not been sufficiently corrected? ” Yes. [laughs]

Jason Moser: Yes.

Frankel: We’re not sure exactly why Buffett sold Wells Fargo other than what he obviously loves. Bank of America (NYSE: BAC) better. I will say that one of the main reasons Buffett sells stocks is that his original reasons for buying no longer apply. By the time he bought Wells Fargo, they were thought to be the best at cross-selling products to their customers, which is a very efficient way of doing business. Like their checking account customers, they would sell them insurance products and credit cards and blah blah. It turns out they were doing it illegally or inappropriately. It really changes the investment thesis. If that cross-sell, and you can cross-sell on Google Wells Fargo, you’ll see it all, they were bragging about their talent. If that was part of Buffett’s original reasons for owning the bank, it makes perfect sense to me why he would have sold because his original reason for buying no longer applies. That’s one thing I would say about it. I mean, I love the bank, but it’s definitely not the Wells Fargo Buffett bought.

Moser: Yes. He has owned it for so long. They made a ton of money on this investment. Maybe he just said to himself, well, it’s all going its course, maybe this one did too.

Frankel: Yes.

Moser: I do not know. Who knows? Let’s see here. What do you think attracted Berkshire to Verizon as opposed to AT&T (NYSE: T)?

Frankel: I would say it’s a more focused business.

Moser: Yeah, I think at least for me, Verizon, it seems to be in better financial shape, its balance sheet versus its income statement. They are both heavily in debt.

Frankel: Verizon has considerably less debt for its size. AT&T is not the most targeted company. They have DirecTV if you remember, Berkshire originally got shares of AT&T because they owned part of DirecTV, and then when AT&T bought it, Berkshire got a nice little stake from AT&T. They acquired Warner. They’re trying to be a streaming company. They are not as focused as Verizon on the core business which only pays the bills and sustains the cycle of capital generation.

Moser: Yes, that has always been my impression. Worried that he would not see him try to let go of some of his entertainment at some point.

Frankel: I am an AT&T shareholder.

Moser: Oh yes?

Frankel: I am, this is one of my biggest jobs.

Moser: Look at you.

Frankel: I am not Warren Buffett.

Moser: You and Buffett are just at odds these days, Matt.

Frankel: We are.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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