The outbreak of the global financial crisis led to a major crisis in the big banks in the United States and Europe, and the government had to rescue them, and the stock prices of bank stocks plummeted. At present, although the banking stocks in China stock market are more profitable and more stable than those in Europe and America, the P/E ratios of many stocks are only single digits.

Crisis, also known as organic crisis. In the past four years, Buffett has increased his stake in Wells Fargo by $2.4 billion and bought $5 billion in preferred shares of Bank of America. Buffett is greedy when others are afraid, so he can buy the best bank stocks at a low price. Buffett said in a letter to shareholders on 20 12: "American banking is coming back to life."

Looking back on Buffett's analysis of Wells Fargo, the largest bank's heavyweight stock, in 1990, we can draw the conclusion that Buffett chose banking stocks according to four criteria: first-class performance, first-class management, large scale and cheap stock price.

Buffett said: "In the past, the return on equity was 20%, and the return on total assets was 1.25%." Please note that in addition to ROE, Buffett also uses the return on total assets to evaluate bank performance.

Buffett attaches importance to bank management because management has a great influence on bank performance: "Banking is not our preferred industry. If the assets are 20 times the shareholders' equity-this is the common asset-equity ratio (the reciprocal of the capital adequacy ratio) in banking. Then, mistakes involving only a small part of assets can destroy a large part of shareholders' rights and interests. Therefore, in many big banks, making mistakes is not an exception, and it has become a routine. Most mistakes stem from a management mistake, which is the' institutional blindness' we discussed in last year's annual report: management blindly imitates peer behavior. "

Because of the financial leverage with the ratio of assets to equity of 20: 1, and at the same time amplifying the influence of good and bad management, Buffett has no interest in buying shares in a poorly managed bank at a "cheap" price. On the contrary, his only interest is to buy well-managed banks at reasonable prices.

Wells Fargo, invested by Buffett 1990, was a large bank with assets as high as $56 billion. 20 1 1 The assets of the four major banks in Buffett's portfolio rank in the United States, namely Bank of America 1, Wells Fargo 4, American Express 19 and United Bank 10, all of which are very large banks. Buffett only invests in big banks because the scale advantage of the banking industry is very important. The bigger the bank shares, the more difficult it is to be acquired, and the stock price is often cheaper. Buffett said: "We bought the shares of Wells Fargo with assets of $56 billion, accounting for 65,438+00% of its equity, which is roughly equivalent to buying a small bank with the same financial indicators and assets of only $5 billion with 65,438+000%. We spent $290 million to buy the share price of Wells Fargo 10%, but if we buy such a small bank as a whole, we have to pay twice the price. "

Buffett's price-earnings ratio when he bought Wells Fargo at 1990 was less than five times: "We were able to buy Wells Fargo on a large scale at 1990, thanks to the chaotic banking stock market at that time. This chaotic market situation makes sense: month after month, some banks that have always been respected in the past have been publicly exposed and made stupid loan decisions. With the exposure of huge loan losses, investors naturally infer that no financial data disclosed by a bank is credible. In the wave of investors selling and fleeing from banks, we were able to invest $290 million to buy 10% of Wells Fargo shares, and the share price we bought was less than 5 times of after-tax profit and 3 times of pre-tax profit.