My #1 investing hero is Warren Buffett. This 92-year-old investor has built a personal fortune of $111.7bn, while giving around $50bn to good causes.
Instead of working on Wall Street, the humble mega-billionaire lives and works in Omaha, Nebraska. (Hence his nicknames: the Sage of Omaha or the Oracle of Omaha.)
When Buffett speaks, markets listen
As one of the world’s most influential investors, when Warren Buffett speaks, even the biggest players listen. I was drawn to a televised interview the investment guru gave to CNBC on Wednesday.
After recent market ructions caused by three mid-sized US banks collapsing, plus the rescue of Swiss giant Credit Suisse, ‘Uncle Warren’ had plenty to say about badly managed banks.
Buffett is worried about banks
During March’s banking crisis, Buffett tried to assist the Biden administration with managing this mess. In his CNBC interview, he warned, “Some of the dumb things that banks do periodically become uncovered during this period”.
He added that this crisis wasn’t sparked by poor lending practices, but by failed risk management. He said, “…they have mismanaged assets and liabilities and bankers have been tempted to do that forever, and then it bites them in a big way. It’s happened before, it’s happened this time, it’ll happen again some day”.
Also, Buffett explained that he sold down bank stocks because executives were too greedy. He remarked, “I don’t like it when people get too focused on the earnings number and forget basic banking principles”.
On public trust in banks, he cautioned, “It’s important that banks retain the confidence of the public and they can lose it within seconds”.
However, he had some comforting words for savers, commenting, “The people that have run banks the wrong way, their shareholders are going to lose money, but the depositors aren’t going to lose money”.
Buffett added, “We’re not through with bank failures. But nobody is going to lose money on deposit in a US bank”. To back his claim, he offered to take $1m bets from anyone willing to wager that US savers would lose money from a 2023 bank collapse. No, thank you, Warren!
He’s also worried about commercial real estate
Commenting on investors taking too much risk, Buffett stated, “I don’t have any problem with people losing money if they do dumb things”.
Another sector the famed investor is watching closely is commercial property. With interest rates rising and asset values falling, Warren Buffett expects higher loan losses for banks. Also, tighter lending standards may worsen this problem.
Should I sell my bank stocks?
From June 2022 onwards, my wife and I built a new portfolio of 11 UK shares and six US stocks. Our UK buys included two of the Big Four banks: Barclays and Lloyds Banking Group. Given my guru’s warnings about banking risks, should we sell these shares?
My answer is a firm no. Although US banks are going through heightened upheaval, I see UK lenders as a completely different beast. British clearing banks are closely regulated, have strong balance sheets, and plenty of high-quality liquid assets at hand.
Of course, I could be wrong — it’s possible a UK bank run could be triggered by deposit flight. But if this did happen, then I’m certain the government would backstop all leading lenders without delay!
