Warren Buffett is buying banks – should you too?

Whenever Warren Buffett and Berkshire Hathaway make a move in the markets, investors are keen to understand it and get some insights into the legendary investor's thinking.

a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

sdf

Whenever Warren Buffett and Berkshire Hathaway make a move in the markets, investors are keen to understand it and get some insights into the legendary investor's thinking.

That's exactly what happened yesterday when SEC filings revealed that Berkshire Hathaway had bought shares worth $US4.02 billion  in JPMorgan Chase & Co, US$829 million worth of shares in Bank holding company PNC Financial Services, US$460 million worth of shares in an insurance company called Travelers as well as a US$2 billion investment into Oracle.

Berkshire Hathaway already owns significant amounts of shares in Banks such as Goldman Sachs, Wells Fargo, Bank of America, and U.S Bancorp.

Why is the Oracle of Omaha so bullish on banks?

Does this mean you should take a closer look at investing into our own Australian banks Commonwealth Bank of Australia (ASX: CBA)Westpac Banking Corp (ASX: WBC)Australia and New Zealand Banking Group (ASX: ANZ) and National Australia Bank Ltd. (ASX: NAB)?

Why Buffett loves financial services

Whilst we can never know for sure, I think there are two main reasons why Warren Buffett loves investing in financial services companies.

Firstly, it is an industry that he understands very well. This deep understanding allows him to invest at times when Bank shares are not popular, like during the global financial crisis when he invested into Goldman Sachs and Bank of America.

Secondly, Buffett loves companies that are able to borrow for long periods of time at a cheap cost. Bank's pay very little interest on customer deposits and can lend that money out at higher rates. Likewise, insurance companies charge premiums and can invest that money interest-free before they have to pay back some of it in claims.

Should you follow this strategy?

I wouldn't load up on Bank shares just because Warren Buffett is doing it. I think that the profile of Australian banks is slightly different to US banks because Australia has more retail banks which have portfolios that are largely made up of housing loans.

The level of regulation, oversight and general scrutiny over Australian banks is quite high at the moment, resulting in our banks curtailing some of their ambitious growth plans.

I also don't think that Buffet's strategies are necessarily suitable for retail investors given that he is already a billionaire and might have a different risk tolerance, financial goals and strategy compared to retail investors looking to build wealth or net income.

Kevin Gandiya  owns shares of Berkshire Hathaway (B shares). You can find Kevin on Twitter @KevinGandiya. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Berkshire Hathaway (B shares). The Motley Fool Australia owns shares of National Australia Bank Limited. The Motley Fool Australia has recommended Berkshire Hathaway (B shares). We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Bank Shares

A man holds his hand under his chin as he concentrates on his laptop screen and reads about the ANZ share price
Bank Shares

Could the growth of Kiwibank impact ANZ shares?

Could a competitor hurt ANZ’s outlook?

Read more »

Shocked office worker staring at computer screen with colleagues working in the background.
Bank Shares

Why CBA shares could keep on rising

Can the ASX banking giant continue to defy analyst expectations?

Read more »

A man looking at his laptop and thinking.
Share Gainers

Thinking of selling your CBA shares? This expert says you should hold on

CBA shares are up by about 80% since November 2023.

Read more »

A young woman holds an open book over her head with a round mouthed expression as if to say oops as she looks at her computer screen in a home office setting with a plant on the desk and shelves of books in the background.
Bank Shares

The catalysts that could bring CBA shares back to earth

CBA is now the world's most expensive banking stock.

Read more »

A money jar filled with coins, indicating an investment return from an ASX dividend share
Bank Shares

Is the CBA share price a buy for passive dividend income?

CBA is one of the biggest dividend payers in Australia. Is it a good buy?

Read more »

a woman looks exhausted and overwhelmed as she slumps forward into her hand while looking at her laptop screen.
Bank Shares

What Microsoft's lost decade could mean for CBA shares

Could CBA shares be worth the same in 10 years time?

Read more »

Woman calculating dividends on calculator and working on a laptop.
Bank Shares

When does Macquarie expect Westpac to cut its dividend?

Here's the latest forecast for this banking giant's dividend.

Read more »

A young woman sits at her desk in deep contemplation with her hand to her chin while seriously considering information she is reading on her laptop.
Bank Shares

When will CBA shares stop rising? CSL might give us a clue

CSL's history might tell us what's in store for CBA.

Read more »