Wells Fargo & Co (WFC), Goldman Sachs Group Inc (GS): What Does Warren Buffett Think About Big Banks?

The second big bank in which Mr. Buffett owns a substantial position is Goldman Sachs Group Inc (NYSE:GS). At the end of 2014, the investor held 12.63 million shares, valued at $2.45 billion. Back in 2008, during the financial crisis, Warren Buffett provided a $5.0 billion investment to Goldman Sachs Group Inc (NYSE:GS), the inflow of capital considered to be life-saving for the bank. In addition, the investment from one of the greatest investors brought some confidence back to the market. However, the investment provided the billionaire with great returns. The investor could’ve profited from exercising the warrants with a strike price of $115 and obtained several hundreds of millions in profits. Moreover, the dividend on the preferred stock issued to Buffett amounted to around $500 million a year and totaled $1.64 billion, when Goldman Sachs bought back the warrants. Mr. Buffett initiated a new stake in Goldman Sachs Group Inc (NYSE:GS) at the end of 2013 and since then, the stake remained unchanged at 12.63 million shares. Another big shareholder of Goldman Sachs is Alex Snow‘s Lansdowne Partners, which owned 5.59 million shares as of the end of 2014.

There is a reason why Mr. Buffett likes to invest in big banks and large-cap companies in general. One of the advantages of investing in these banks is the possibility of gaining steady returns over the year without worrying to much about short-term fluctuations. In his last annual letter to Berkshire shareholders, Mr. Buffett outlined some great points about short-term fluctuations of stock prices. The Oracla of Omaha said that the majority of investors should keep their focus on a multi-decade horizon and not pay attention to quotational declines. In this way, their investments will provide significant returns over their investing lifetime and in addition will prove to be less risky than dollar-based securities.

All in all, Mr. Buffett considers that the present banking system is pretty good in the current environment. The video with his interview can be watched below:

Disclosure: None