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Billionaire investing success Warren Buffett does not like owning bonds at this point, and he thinks the average investor should avoid them as well.

The chairman and CEO of Berkshire Hathaway, major investment conglomerate, believes that individual investors should have plenty of cash on hand so they are comfortable just in case something unexpected happens.

He also believes that they should invest the rest of their money in stocks, even though the price of stocks has risen quite higher than they were years ago when the Great Recession first hit.

On Monday while giving an interview on CNBC, Buffett told the world that bonds are a terrible investment at the current time, and he also mentioned that long-term bond owners may see large losses once interest rates eventually rise again.

The Oracle of Omaha also said that stocks are selling for very reasonable prices generally even though the Dow Jones Industrial average is seeing record high levels, along with the S&P 500 index.

Buffett, 82 years old, also mentioned that he doesn’t have any plans to retire in the near future, and he also believes the efforts of the Federal Reserve, with keeping interest rates low, have helped the stock market. Income improvements continue to play a role for stocks as well.

Buffett is a continued fan of Federal Reserve Chairman Ben Bernanke, and he mentions that he believes bond prices are artificially inflated because of the stimulus that is ongoing from the Federal Reserve. The stimulus is $85 billion worth of bonds being bought every month, which keeps the interest rates at a low level. At this time, bond yields are near historic lows, and they move inversely to prices.

On Monday, Buffett gave interviews to Fox Business News and CNBC after Berkshire Hathaway’s annual shareholders meeting this past weekend. It was a star-studded event.

At the time of this writing, Berkshire Hathaway owns more than 80 companies and has large investments in IBM, Coca-Cola and Wells Fargo, as well as other iconic brands.

Buffett also reiterated his support of Jamie Dimon, J.P. Morgan Chase chairman and CEO. He said that Chase has the right person running the show, and he also owns the stock as part of his personal portfolio.

Buffett also believes that Berkshire Hathaway will own a stake in H.J. Heinz – the ketchup maker – forever, and he said that he didn’t have any problem taking on 3G Capital as a partner. They are the Brazilian investment firm that split the bill for H.J. Heinz. He also hopes that the Berkshire Hathaway stake in Heinz will grow as time goes by.

He was also questioned about the way the Heinz deal was structured. People wonder if the 50% split is a change in the way Berkshire Hathaway will invest and do business from now on. Berkshire Hathaway typically buys a company outright, and they let the company run without any intervention whatsoever.

3G Capital is not your typical private equity firm, said Buffett, since they put a large amount of their own money in deals, and they also run businesses.

Buffett even mentioned that Burlington Northern Santa Fe railroad’s traffic is picking up, but it’s probably going to haul fewer carloads than it did before the recent recession.

Burlington Northern Santa Fe “has been a terrific acquisition for Berkshire,” said Buffett.

BNSF contributed $798 million to Berkshire Hathaway’s $4.9 billion profit for the first quarter, which the company reported on Friday. Berkshire Hathaway’s profits rose by over 51%, beating last year’s net income of $3.3 billion by a wide margin.

Warren Buffett, billionaire investor, encourages young workers to seek out jobs of which they are passionate about. This is career advice that he offered to youngsters online this Tuesday when he spoke about a number of topics.

Every year, Mr. Buffett takes time out of his busy schedule and he meets with students from roughly 40 colleges. He does this to answer questions about business and life. This Tuesday he did so in an online forum, and he had the opportunity to offer his advice to a much wider audience.

Buffett often chooses to compare the things he does as CEO and chairman of Berkshire Hathaway to painting a canvas with a masterpiece. He also regularly tells us that it doesn’t feel like he works because he loves what he does.

“I love painting on my canvas, and you’re lucky in life if you can find your passion,” said Buffett.

The 82-year-old Oracle of Omaha was fortunate that he figured out what he wanted to do early on in his life when he read books that he found lying around at his dad’s securities brokerage. Now his daily routine consists of finding the best deals for Berkshire Hathaway by reading five or six hours a day, speaking with his friends and playing online bridge.

Buffett tells us that he does not often do things that he doesn’t enjoy, and he’s been able to hand off almost all of the day-to-day tasks of running his company that has 285,000 employees, and other people take care of this for him.

“I have delegated like nobody has ever delegated with a company of this size,” said Buffett.

Berkshire Hathaway actually owns more than 80 subsidiaries, and they include furniture stores, jewelry stores, clothing stores and railroads. They are also in the insurance and utility business, which makes up about more than half of the income that Berkshire Hathaway enjoys. Plus, the company has large investments in businesses such as Wells Fargo, IBM, American Express and Coca-Cola.

Berkshire’s Class A shares, which actually make up the majority of Warren Buffett’s fortune, are still currently the most expensive stock in the United States of America. At Tuesday’s closing, the stock finished the day at $164,690 per share.

Money is not the only way you should measure the success of Warren Buffett. Did you know that he continues to live in the home in Omaha that he bought in 1958? Buffett’s lifestyle could allow him to live on $100,000 a year very easily, with the exception of the private jet that he really enjoys.

Last weekend alone, Warren Buffett spent over five hours answering questions for more than 30,000 people at the annual shareholder meeting held by Berkshire Hathaway. He even entertains groups of shareholders at events and steak dinners during the weekend.

This Tuesday Buffett spent around an hour responding to questions sent to the Levo League website. They help young professionals find job opportunities and mentors early in their career.

“It’s really important in life to have the right heroes,” said Buffett.

Buffett also mentioned that being able to study at Columbia University under Benjamin Graham, and working for Graham’s investment firm for two years, helped solidify his understanding of Graham’s investment techniques that Buffett used to create his huge fortune. Buffett also mentions that his first wife and his father’s influence also played a major role in his success because they taught him about life.

Buffett encourages the younger generation to try and work for and associate with those that they admire.

“If you’re working for somebody that makes your stomach turn, maybe you have to keep doing it for a while to eat, but don’t settle for it,” said Buffett.

With Berkshire Hathaway recently releasing their annual report, Warren Buffett mentions that their performance in 2012 was “subpar” even though they have a growing book value of $24.1 billion and a stock portfolio consisting of 41 companies worth $75.3 billion.

In the most recent letter to Berkshire Hathaway shareholders, Warren Buffett said that ownership interest in the top four companies American Express, Coca-Cola, IBM and Wells Fargo will likely increase at some point in the future. At the end of the year, the total unrealized gain was worth $26.7 billion. From all of these shares mentioned, Berkshire Hathaway gained a total of $1.1 billion in dividends. Here’s a link to the complete Berkshire Hathaway shareholder letter.

Since they are heavily investing in DaVita Healthcare Partner, the behavior of Berkshire Hathaway shows investors they believe that the healthcare provider of kidney dialysis services will continue to grow in Europe and the United States throughout 2013. The company has recently added many shares of DVA to the Berkshire Hathaway portfolio – and as of February 27, 2013, they currently hold 14,808,959 shares.

Here’s a brief review of the top four companies mentioned in the annual letter to shareholders written by Warren Buffett: AXP, KO, IBM and WFC.

Wells Fargo & Co. is Warren Buffett and Berkshire Hathaway’s number one holding. They consist of about 20% of their overall portfolio, and they currently have 439,857,861 shares of the financial institution.

The large banking institution Wells Fargo & Company is in service to one out of every 3 households in the United States of America, as well as 35 other countries. Buffett often speaks very highly of the fantastic management of this bank. It is ranked fourth in assets out of all the banks, but it currently ranks first in market value of its common stock out of all banks in the United States. This is one of the fastest recovering banks during the industry implosion that took place a few years back. The management of Wells Fargo was responsible for turning around the bank just several years ago.

During the past, Warren Buffett has mentioned the bank’s low cost of funding, which is a powerful advantage when it comes to lending. Wells Fargo & Co. is a company incorporated under the laws of Delaware. They are a financial holding company, as well as a bank holding company and they are registered under the Bank Holding Company Act of 1956. The market cap of Wells Fargo & Co. is $187.38 billion. Its shares currently trade near $35.50, they have a P/E ratio of 10.6, and their P/S ratio is 2.2. The dividend yield of the company’s stock is 2.6%. They also possess an annual average earnings growth of 1.5% over the last 10 years.

In a previous annual letter, Warren Buffett commented, “the banking industry is back on its feet, and Wells Fargo is prospering. It’s earnings are strong, its assets solid and its capital at record levels.”

Coca-Cola is Warren Buffett and Berkshire Hathaway’s number two holding at the time of this writing. They consist of about 19.3% of the Berkshire Hathaway portfolio, and the company currently owns 400 million shares.

Coca-Cola is a worldwide brand and a company that is known for its carbonated beverages, and also known for its juices and tea drinks. Seventy five percent of the revenue generated by this company is from countries outside of the United States. The Coca-Cola brand is famous in almost every country in the world, and this includes Africa.

The company is considered to be very healthy, and it is consistently growing. The annual Coca-Cola earnings over the last 10 years have been 9.6% consistently. The soda manufacturer has a market cap of $172.16 billion. At the time of this writing, the shares traded at $38.63. The current P/E ratio is 19.6, and the P/S ratio is 3.7. Coca-Cola’s current dividend yield is 2.6%. They received a business predictability rank of five stars from GuruFocus. Buffett said that he was late to the Coca-Cola party, and he commented on the longevity of the brand at one time. He bought his shares in 1988 along with shares of Freddie Mac. At the time, Buffett said this in regards to his new purchases:

“In 1988 we made major purchases of Federal Home Loan Mortgage Pfd. (“Freddie Mac”) and Coca-Cola. We expect to hold the securities for a long time. In fact, when we own portions of outstanding businesses with outstanding management, our favorite holding period is forever. We are just opposite of those who hurry to sell and book profits when companies perform well but who tenaciously hang onto businesses that disappoint. Peter Lynch aptly likens such behavior to cutting the flowers and watering the weeds.”

International Business Machines Corp. (IBM) is the number three Berkshire Hathaway holding. They currently consist of 17.3% of the Berkshire Hathaway portfolio, and number 68,115,484 shares.

It is widely known that Warren Buffett has praised the leadership of IBM. They rescued this company from the brink of bankruptcy 20 years ago and turned it into the successful company that it is today. In the last annual letter written by Warren Buffett, he mentioned that IBM management has created extraordinary operational accomplishments, saying, “Their financial management was equally brilliant, particularly in recent years as the company’s financial flexibility improved. Indeed, I can think of no major company that has had better financial management, a skill that has materially increased the gains enjoyed by IBM shareholders.”

IBM was incorporated in New York on June 16, 1911 under the name Computing–Tabulating–Recording Co. International Business Machines Corp. has a market capitalization of $227.92 billion. At the time of this writing, the shares traded at $204.5 per share. The current P/E ratio is 14.1, and the P/S ratio is 2.2. The IBM dividend yield for company stock is 1.7%. Over the last 10 years, International Business Machines Corp. has had an annual average earnings growth of 12.1%. GuruFocus has rated IBM with the business predictability rank of five stars.

American Express Co. (AXP) is the number four holding in the Berkshire Hathaway portfolio. They currently make up 11.6% of the portfolio, and Berkshire Hathaway owns 151,610,700 shares.

American Express Company is another Warren Buffett favorite. In an effort to create an entire value chain, the company segmented its credit card lending business into three separate businesses: international card and global commercial services, US card services and global network and merchant services. As the owner of the entire chain of value, AXP has created a very profitable niche for itself throughout the financial service market. This presents a tremendous potential for profits. Being it has a very closed loop of its own related services and products, as well as marketing, the pricing of American Express has a competitive advantage already built-in.

American Express Company was originally founded in 1850 as a joint stock association. They incorporated in 1965 as a New York Corporation. The American Express market cap is $69.06 billion. It shares currently trade at $62.5. The P/E ratio is 16, and the P/S ratio is 2.3. The stocks dividend yield is 1.3%, and the American Express Company has seen an average earnings growth of 5% over the last 10 years. GuruFocus has given American Express a business predictability rank of 3.5 stars.

Berkshire Hathaway is drawn to the fair value computation of American Express, and they are a stock currently undervalued with lots of room to grow. In addition, they have a nice dividend. American Express presents a nice opportunity for many investors and according to the recent shareholder letter from Warren Buffett, he will probably be adding to this position in the near future.

Warren Buffett, the most famous investor in America, really holds himself to a much higher standard than most. That’s why he describes the business year of 2012 as “subpar” even though Berkshire Hathaway made a total of $24.1 billion for its shareholders. Buffett pointed out that only for the ninth time in Berkshire Hathaway’s 48 years, their book value of 14.4% was actually less than the S&P’s gain of 16%. This is basically how Buffett kicks off his annual letter, which he released on Friday, March 1. If you are interested in investing, then this document is a must read for you and anyone else interested in this field. It’s filled with plenty of Warren Buffett’s homespun, wry style.

Putting aside the “subpar” performance of Berkshire Hathaway, Buffett’s other major regret was the “inability” to achieve a major accomplishment during 2012. “I pursued a couple of elephants, but came up empty handed,” wrote Buffett. He did find his mojo again during the early part of 2013, being part of a blockbuster 23.3 billion-dollar acquisition of H.J. Heinz Co., the ketchup giant. Berkshire Hathaway is putting up $12 billion to purchase half of the company, along with another group of investors led by Brazilian businessman Jorge Paulo, who is buying the other half of the company.

Buffett wrote that now that this deal is done, it’s time for more big game hunting. “Charlie and I have again donned our safari outfits and resumed our search for elephants.” (Charlie Munger is long-time partner to Warren Buffett and friend of many years.)

Without question, the Buffett annual letter to shareholders is quite educational in regards to his philosophy of value investing, which he learned from Benjamin Graham, his mentor and author of The Intelligent Investor, a classic business tome.

Buffett’s investing philosophy is quite simple: Invest in easy to understand companies, for the long-term, with managers who love their business, and the businesses are currently undervalued. Always disregard all flavor of the month trends.

Buffett personally loves to invest in large, extremely reliable American businesses. This explains why the four biggest Berkshire Hathaway investments are in Wells Fargo, Coca-Cola, IBM and American Express. He increased Berkshire Hathaway’s ownership stake in all of these companies during 2012. The Omaha, Nebraska-based investment firm now owns 8.9% of Coca-Cola, 6% of IBM, 13.7% of American Express and 8.7% of Wells Fargo. “Berkshire’s ownership interest in all four companies is likely to increase in the future,” wrote Buffett. “Mae West had it right: ‘Too much of a good thing can be wonderful.’”

Let’s now take a look at some of the major highlights of the Berkshire Hathaway annual letter:

Guessing about Succession: The question asked most frequently in American capitalism is this: Who is going to finally replace the 82-year-old Warren Buffett? Buffett has made it quite clear that his duties are going to be divided among an investment manager – who is responsible for the allocation of Berkshire’s money – and a CEO, ultimately in charge of running the entire $170 billion empire that is Berkshire Hathaway. Warren Buffett confirmed last year that Ted Weschler and Todd Combs, two relatively unknown hedge fund managers, will be replacing him on the investment side. Buffett was very pleased with their performance during 2012.

Weschler and Combs “have proved to be smart, models of integrity, helpful to Berkshire in many ways beyond portfolio management, and a perfect fit,” wrote Buffett. “We hit the jackpot with these two. In 2012 each outperformed the S&P 500 by double-digit margins.” Buffett then added mischievously, in a very tiny font: “They left me in the dust as well.” As a result of this excellent performance, Buffett and Berkshire Hathaway have decided to increase their investment funds to around $5 billion. “Todd and Ted are young and will be around to manage Berkshire’s massive portfolio long after Charlie and I have left the scene. You can rest easy when they take over,” wrote Buffett.

On the side of management, Warren Buffett didn’t provide any clues, but he did heavily praise Ajit Jain, a longtime favorite of Buffett who manages the reinsurance group of Berkshire Hathaway worth in the multi-billions. He is widely looked upon as one of the top candidates to take over the CEO position at Berkshire. “From a standing start in 1985, Ajit has created an insurance business with float of $35 billion and a significant cumulative underwriting profit, a feat that no other insurance CEO has come close to matching,” wrote Buffett. “He has thus added a great many billions of dollars to the value of Berkshire. If you meet Ajit at the annual meeting, bow deeply.”

Newspapers: We all know that Buffett loves newspapers, “and if the economics make sense, [Berkshire] will buy them even when they fall far short of the size threshold we would require for purchase of, say, a widget company.” Over the last 15 months, Berkshire Hathaway has acquired 28 daily newspapers and paid $344 million for the privilege, he wrote, even with his long-standing prediction that “the circulation, advertising and profits of the newspaper industry overall are certain to decline.”

Here’s Warren Buffett’s logic: “News, to put it simply, is what people don’t know that they want to know,” wrote Buffett. “And people will seek their news – what’s important to them – from whatever sources provide the best combination of immediacy, ease of access, reliability, comprehensiveness and low cost.” Buffett will readily admit that the Internet has been a disruption on the traditional newspaper business model, causing a drastic decline in revenues and readership. But there’s one particular area in this industry where Buffett sees an opportunity:

Newspapers continue to reign supreme, however, in the delivery of local news. If you want to know what’s going on in your town – whether the news is about the mayor or taxes or high school football – there is no substitute for a local newspaper that is doing its job. A reader’s eyes may glaze over after they take in a couple of paragraphs about Canadian tariffs or political developments in Pakistan; a story about the reader himself or his neighbors will be read to the end. Wherever there is a pervasive sense of community, a paper that serves the special informational needs of that community will remain indispensable to a significant portion of its residents. [...]

Charlie and I believe that papers delivering comprehensive and reliable information to tightly-bound communities and having a sensible Internet strategy will remain viable for a long time. We do not believe that success will come from cutting either the news content or frequency of publication. Indeed, skimpy news coverage will almost certainly lead to skimpy readership. And the less-than-daily publication that is now being tried in some large towns or cities – while it may improve profits in the short term – seems certain to diminish the papers’ relevance over time. Our goal is to keep our papers loaded with content of interest to our readers and to be paid appropriately by those who find us useful, whether the product they view is in their hands or on the Internet.

Uncertainty: In one of the more surprising parts of the annual Berkshire letter, Warren Buffett called out a few of his fellow US CEOs who have “cried ‘uncertainty’ when faced with capital allocation decisions (despite many of their businesses having enjoyed record levels of both earnings and cash).” Buffett is an optimist for America, who wrote that he is not in agreement with their concerns. “If you are a CEO who has some large, profitable project you are shelving because of short-term worries, call Berkshire. Let us unburden you,” wrote Buffett.

American business will do fine over time. And stocks will do well just as certainly, since their fate is tied to business performance. Periodic setbacks will occur, yes, but investors and managers are in a game that is heavily stacked in their favor. (The Dow Jones Industrials advanced from 66 to 11,497 in the 20th Century, a staggering 17,320% increase that materialized despite four costly wars, a Great Depression and many recessions. And don’t forget that shareholders received substantial dividends throughout the century as well.)

Since the basic game is so favorable, Charlie and I believe it’s a terrible mistake to try to dance in and out of it based upon the turn of tarot cards, the predictions of “experts,” or the ebb and flow of business activity. The risks of being out of the game are huge compared to the risks of being in it. My own history provides a dramatic example: I made my first stock purchase in the spring of 1942 when the U.S. was suffering major losses throughout the Pacific war zone. Each day’s headlines told of more setbacks. Even so, there was no talk about uncertainty; every American I knew believed we would prevail.

The country’s success since that perilous time boggles the mind: On an inflation-adjusted basis, GDP per capita more than quadrupled between 1941 and 2012. Throughout that period, every tomorrow has been uncertain. America’s destiny, however, has always been clear: ever-increasing abundance.

Omaha, Nebraska, Next Stop: The Berkshire Hathaway annual shareholders meeting is known as the Woodstock of capitalism – and for very good reason. Each year, tens of thousands of the Berkshire Hathaway faithful make a pilgrimage to the annual meeting of the company, which takes place in Omaha, Nebraska on May 4 this year. It is quite the spectacle: imagine for a moment a Grateful Dead concert populated by hard-core, and in certain cases, the very wealthy, true believers in capitalism. Everyone is always in a great mood. Among this year’s highlights are:

• Berkshire Hathaway’s second annual international newspaper tossing challenge. “Last year I successfully fought off all challengers,” wrote Buffett. “But now Berkshire has acquired a large number of newspapers and with them came much tossing talent (or so the thrower’s claim). Come see whether their talent matches their talk.”
• The “Berkshire 5K” race will start at CenturyLink Center, the arena that holds 19,000 seats and is also the location of the annual meeting. “We will have plenty of categories for competition, including one for the media,” wrote Buffett. “Regretfully, I will forgo running; someone has to man the starting gun.”
• On Sunday, May 5, they hold the Borsheims Fine Jewelry gala. (Berkshire has owned Borsheims, the Omaha-based company, since 1989.) “Around 1 PM on Sunday, I will begin clerking at Borsheims,” wrote Buffett. “Last year my sales totaled 1.5 million. This year I won’t quit until I hit the $2 million. Because I need to leave well before sundown, I will be desperate to do business. Come take advantage of me. Ask for my ‘Crazy Warren’ price.”

The annual Berkshire Hathaway meeting is always a very memorable experience. Buffett can seem like he’s ageless at times, but unfortunately, that just isn’t the case. So if you happen to be a Berkshire Hathaway shareholder in the area of Omaha during the first weekend of May, you never know who you’re going to run into at Piccolo’s or Gorat’s. “These restaurants are my favorites, and I will eat at both of them on Sunday evening,” wrote Buffett. If you decide to go to Piccolo’s, “order a giant root beer float for dessert,” advises Buffett. “Only sissies get the small one. (I once saw Bill Gates polish off two of the giant variety after a full course dinner; that’s when I knew he would make a great director.)”

In recent years, Warren Buffett has had an incredible appetite for buying shares of the San Francisco-based bank Wells Fargo. It is now the biggest public investment in the Berkshire Hathaway portfolio.

Wells Fargo recently pushed aside the long-standing Coca-Cola, which Berkshire Hathaway began purchasing in late 1987, and finally stopped in 1995. He believed that the true value of Coca-Cola will was not reflected in the share price at the time. Considering the fact that Coke remained the largest holding for Berkshire Hathaway for many years lets us know how well it performed for Buffett and company.

Warren Buffett has been adding to his will far goes holdings for quite a few years. The consistent purchases has prompted it to become Berkshire Hathaway’s largest holding.

Berkshire Hathaway’s last regulatory filing shows us that they added another 17.3 million shares of Wells Fargo during the last quarter. That brings the total holding to 439.8 million shares. Warren Buffett has been the largest shareholder of Wells Fargo for quite some time.

Berkshire Hathaway stake in Wells Fargo is roughly worth around $15.5 billion. The Coca-Cola stake is currently valued at $14.7 billion.

There is no question that Warren Buffett is going to spend some of his time writing about Wells Fargo in the upcoming letter to Berkshire Hathaway shareholders. The letter will be distributed after the market closes on March 1.

Warren Buffett has talked about Wells Fargo being his favorite bank in the past, and regularly mentions the banks low cost of funding. This is a powerful business advantage when the lending money. The chairman and CEO of Wells Fargo, John Strumpf, says he begins his day by reviewing the deposit figures of the bank.

Wells Fargo is currently the fourth largest bank in the United States according to assets. They recently had to relinquish their title of being the most valuable bank back to J.P. Morgan Chase.

Many people still believe that Wells Fargo will eventually be the largest bank in the United States one day.

They made a large step in that direction during 2008 when they purchased walkover you. There were a lot of mortgage woes when they made this deal, but the deal also turned Wells Fargo into a true national bank.

It was surprising to read that an analyst criticized the walkover you purchase as one of Wells Fargo’s recent mistakes. I wouldn’t be surprised if Buffett decides to pick up another few million shares because of the news.

Think about having the opportunity to invest in two different companies that Warren Buffett “guaranteed” would be successful. He is one of the wealthiest men in the world after all. As an investor, most individuals would jump at this opportunity for the chance to invest just like the multibillionaire.

Do you think this is pie-in-the-sky thinking? I’m happy to tell you that it’s not.

Warren Buffett recently issued his personal guarantee on the controversial bank sector.

In the middle of January, the Oracle actually guaranteed that the US banking segment is safe.

“The banks will not get this country in trouble, I guarantee it,” said Buffett.

“The capital ratios are huge, the excesses on the asset side have been largely cleared out… We own bank shares and I personally own stock in banks… I do not see a problem in these things.”

I’d say it’s very clear that Warren Buffett is committed to the banking sector, and he proves it more than in just words. Over 37% of the $75 billion portfolio of Berkshire Hathaway is interested in the banking sector, and their money has purchased stocks such as Wells Fargo and Company, M&T bank and U.S. Bancorp.

Let’s now take a closer look at the two stocks Warren Buffett has a very large stake in.

M&T Bank

After letting go of nearly 1 1/2 million shares of this stock in early 2010, Warren Buffett is now buying this stock once again, and he has recently purchased over 18,000 shares during the third quarter of 2011. He hasn’t had any other activity with the stock since then, but he does own a total of 5.5 million shares of the bank. This represents a little over 4% of the company’s outstanding shares, and it is valued at around half a billion dollars.

The bank itself has $78 billion worth of assets, and it is in the top 20 largest commercial bank holding companies in the United States of America. Over the last five years, the company has increased their revenue at a 4.4% rate of return, their free cash flow has risen by 18.6% in the book value goes up 6% annually.

Buffett bases his purchasing decision on very specific metrics, and they are all showing strong signs of improvement. The tier 1 common ratio, which is what measures the financial strength of the bank, is now at 7.5%. This has risen from 6.9% just one year earlier.

Since September 2012, the technical picture shows us that M&T Bank’s stock has been on the rise. But it has unfortunately hit heavy resistance at $104 per share. It currently has a 12 month target of $110 per share, and investors might want to wait for it to break through resistance before investing.

Wells Fargo

Unless you have been living under a rock lately, everybody knows that Warren Buffett loves this bank. He has been buying shares since 1989. He has actually purchased more than 12 million shares of the company starting in the first quarter of 2009, and ending during the third quarter of 2012. In total, Berkshire Hathaway owns over 422 million shares of the bank. This roughly translates to about 8% of the company, and it’s worth over $14 billion.

We have been seeing improvements with this bank all across the board over the last five years. The company revenue annually grows at a rate of 10% to reach $21.9 billion. The EBITDA increases annually by 4% to the tune of 36.3%. They have ramped up their book value to over 14% during the same five years, and it is now $27.47 per share.

The bank deposits have increased by over 7% to the tune of $929 million just one year ago. The bank’s tier 1 common ratio has expanded to 10.1%. It was just 9.5% last year at that time. The total risk to asset dropped from 11.2% to 10.8% year-over-year. On the flipside, the nonperforming assets dropped from $25.3 billion to $24.5 billion just during the third quarter of 2012 alone.

If you look at the short-term technical picture, the stock price has bounced from its mid-November lows and it’s now pushing to break through its resistance at the $35 range. If you plan to invest, you should wait for a daily breakout above $36 per share and it needs to close above this price. The 12 month target is $40.

Some risk to consider: the banking sector in the United States of America is not necessarily out of the woods just yet. There is massive mortgage default overhang and ultralow interest rates, and this shows us that there are still difficult times ahead for the sector. Warren Buffett is guaranteeing that the bank sector will move in a positive direction, but he never promised that you will make any money buying his stock picks. Hedge funds call Warren Buffett’s words “talking his book”. This basically means that he is promoting his own holdings.

Now that we have that out of the way, it’s very clear that banks have made great strides over the past several years. It probably isn’t wise to buy either of these bank stocks right now, even though Warren Buffett tells you it’s worth it in his own words.

If you would like to track and follow Warren Buffett’s example, it would make sense to wait for a breakout close above $104 per share for M&T Bank and for a $36 breakout for Wells Fargo. The good thing is that Warren Buffett is singing the praises of the entire banking sector, and that will definitely help the share price improvement for these stocks.

Warren Buffett says that US banks are “in the best shape in recent memory,” as he mentions this to Bloomberg News recently. He also believes that they will not cause the next big financial meltdown.

As the CEO and chairman of Berkshire Hathaway Inc., based out of Omaha, Nebraska, Warren Buffett has earned billions of dollars over the past four years when he started investing in Wells Fargo and Company, Goldman Sachs, U.S. Bancorp and Bank of America. Let’s not forget about General Electric as well. They are all companies that operate in the finance industry, and they each fall under the banking category.

And if he wanted to, Warren Buffett could earn another $3 billion right now by cashing in discount stock purchase warrants from Bank of America. He chose to wait instead, and here’s why:

“We’re in no hurry,” said Buffett to Bloomberg. “Nine years from now I would think that Bank of America as well as Wells Fargo and probably the other major banks will be worth considerably more money than they are now.”

Mister Buffett says that the banks are so much more healthy right now since the financial crash during 2008 because they have cleared out the bad loans on their books, rebuilt their capital, lowered their risk, cut their expenses and repaid the taxpayer bailouts throughout a very fragile real estate market.

There are many experts that still worry the biggest banks in the US are too big, and they can easily repeat the same problems that triggered the recession that we went through recently. Buffett doesn’t believe this.

“The banks will not get this country in trouble, I guarantee it… We do not have an unusually concentrated banking system compared to the rest of the world, and there are certain advantages in the largest capital market in the world to having banks that are somewhat consistent with the size of those markets.”

Warren Buffett is a billionaire investor who has taken out stakes in some of the largest United States banks, who tells us that the lenders have rebuilt their capital to the levels where they aren’t a possible threat to the economy any longer.

“The banks will not get this country in trouble, I guarantee it,” said Buffett – the CEO and chairman of Berkshire Hathaway, based out of Omaha, Nebraska – in an interview that he gave over the phone last week. “The capital ratios are huge, the excesses on the asset side have been largely cleared out.”

Major lenders including Citigroup Inc. and Bank of America Corp. have sold off their assets, bolstered their balance sheets and cut many jobs after they repaid the 2008 taxpayer bailouts, when these companies were truly overwhelmed by losses on housing market related securities. All of those actions helped raise the value of Berkshire Hathaway’s holdings, and increase financial stocks at the same time.

Berkshire Hathaway has invested in at least four of the seven biggest lenders in the United States of America by assets, and has also taken out more than a $14 billion stake in Wells Fargo and Co., based out of San Francisco. They have a $5 billion stake in Bank of America, and they have $5 billion worth of warrants to purchase shares of Goldman Sachs Group Inc. Berkshire Hathaway has a stake in U.S. Bancorp as well.

“Our banking system is in the best shape in recent memory,” said Buffett.

Past bank regulators and executives tell us that the biggest lenders still pose some risk to the United States economy even four years after the bailout, plus 2 1/2 years since legislators passed the largest major reforms to regulation on Wall Street since the Great Depression.

Trading Loss

Last year, J.P. Morgan Chase and Co. took a trading loss of $6.2 billion, which reminded America of our concerns for the banking industry. Sandy Weill, former CEO of Citigroup, mentions that lending money and taking deposits should be split off from investment banking as a way to prevent another major financial crisis.

Other investors have also spoke about their doubts and the accounting of banks. Even after the stock rally last year, J.P. Morgan, Bank of America, Goldman Sachs and Citigroup are all trading at less their book value, which is a calculation of how much a company’s assets should be worth if you subtract their liabilities.

There were mergers taking place during the financial crisis that brought about criticism, saying that too big to fail banking companies are getting even larger. Buffett mentions that this shouldn’t worry investors at all. Canadian banks managed to get through this crisis a lot better than other banks in many nations, as the biggest firms in Canada took hold of more market share than their counterparts in the United States did.

U.S. Advantages

“We do not have an unusually concentrated banking system compared to the rest of the world, and there are certain advantages in the largest capital market in the world to have banks that are somewhat consistent with the size of those markets,” said Buffett.

The biggest United States banks are going to face another round of Federal Reserve stress tests to figure out whether or not they have enough capital to raise dividends and buy back shares of their stock. Brian T. Moynihan, CEO of Bank of America, tells us that he’s confident BOA is going to pass even though they failed in 2011, when he did not receive the approval to increase the dividend.

Buffett also lent Bank of America credibility by providing the bank capital during 2011, after the company saw a 45% decline in share price during an eighth month period. This trade also followed moves during 2008 that Warren Buffett made by helping out General Electric Company and Goldman Sachs during the financial crisis. Both of the companies bought back the preferred shares that they sold to Warren Buffett. He also expects that Bank of America may potentially do the same.

Improved Condition

“Their condition has improved so significantly, and interest rates are so low, that they have the chance to do a number of things in that respect,” said Buffett. “I may like to keep it, but if it makes sense for them to call it, they’re going to call it.”

The preferred shares that Berkshire Hathaway owns of Bank of America pay an annual dividend of 6%, and they can redeem them at any time for the amount of $5.25 billion, according to the terms of the deal that was made. The deal also gives Warren Buffett 10 year warrants to buy 700 million shares of common stock from Bank of America at $7.14 apiece. Bank of America recently closed at $11.43 per share. If Warren Buffett were to exercise that option at those prices, he would make about $3 billion.

Buffett mentions that Berkshire Hathaway is most likely going to wait toward the end of the contract before they exercise that option.

“We’re in no hurry,” said Buffett. “Nine years from now I would think that Bank of America as well as Wells Fargo and probably the other major banks will be worth considerably more than they are now.”

A spokesman for Bank of America named Larry DiRita chose not to comment on Warren Buffett’s Bank of America investment.

Their Tier 1 capital ratio has almost reached 9% as of September 30 based on the newest standards internationally, and it’s up from about 8% just three months earlier. Their long-term debt dropped to $286.5 billion by the end of the third quarter, and this is down from $399 billion just one year earlier.

To start this off right, I’d like to point out that Warren Buffett is extremely optimistic about the future of America. “Tomorrow’s always uncertain,” he mentions while on CNBC this morning. “But the future, the longer future, is always very certain. And that’s what you have to keep your eye on.”

It’s this very attitude that allows Mister Buffett to continue building astronomical stakes in businesses that he feels are worthy through the best of times and the worst of times. But how does Warren Buffett choose these particular companies to begin with? Let’s look at Wells Fargo, and find the evidence in this stock which he continues purchasing the most.

Wells Fargo

Wells Fargo has entered into Warren Buffett’s portfolio way back in the 1990s, and it is a great representation of his philosophy of long term investing. Plus, you can see a steady trend of continual buying of this stock since the first quarter of 2009. From that point until the present day, Berkshire Hathaway has bought 1 million 119,940,333 shares of Wells Fargo. This has brought the total position up to more than 422 million shares in all.

Warren Buffett made three very important moves in his portfolio during 2011, and Wells Fargo was one of them, along with Bank of America and IBM purchases. He provides shell holders several different reasons why this was important during his annual letter: “the banking industry is back on its feet, and Wells Fargo is prospering. Its earnings are strong, its assets solid and its capital at record levels.”

Wells Fargo is also extremely large – since it currently serves about one out of every three households in the United States of America from its 12,000 ATMs, it’s 9000 branches and their website. They are also prominent in 35 different countries. This company is also the first in market value of its common stock out of all of the United States banks, and the fourth in assets.

Even though Warren Buffett requires a high ROI from a bank, he also insists that the return on investment be gained in a conservative manner. This is great, because Wells Fargo has a very well maintained and controlled operating environment. It has excellent ground rules in place to manage credit risk, and they monitor their loan portfolio performance very closely. It also has set ranges for its interest rates and market risks in its liabilities and assets, while it is able to fuel growth with ample capital levels and liquidity.

In addition, Wells Fargo will continue to remove nonperforming loans from its assets. During the third quarter of 2012, loans that were 90 days past due or more totaled in the amount of $1.5 billion. This is down a half $1 billion from the $2 billion at the end of 2011.

As well, Wells Fargo also solidified its position with capital. The equity earned in the third quarter was increased by $6.6 million from the second quarter numbers, and rose to $156.1 billion. Its tier 1 common equity reached the amount of $105.8 billion, which is equal to 9.9% of the risk-weighted assets. Wells Fargo also has a nice tier 1 capital ratio of 11.5% in their total capital ratio of 14.51%, as well as the tier 1 leverage ratio that they possess of 9.4% which rounds out the third quarter.

The other results that they gained during the third quarter are testament to showing that they are a strong company that can easily withstand economic uncertainty. The bank overall reported a total of $4.9 billion and earnings, which is up 8/10 of 1 billion from last year’s $4.1 billion at the same time.

The improvements that Wells Fargo gained this year were basically brought on by fee income and balanced net interest. They also have a strong credit performance, a diversified loan portfolio and further diversified sources of their fee income. They also grew across many of their businesses.

Wells Fargo’s third-quarter revenue grew to $21.2 billion, which is up from the $19.6 billion that it saw at the same time last year. The revenue was strictly sparked from noninterest income growth in the mortgage banking industry, and you can combine that with a mild increase in their income from that interest. They also originated 56% more loans this year than they did at the same time last year.

Also during the same quarter, Wells Fargo decided the buyback 17 million shares and they also paid a $.22 dividend. The previous year’s dividend was only $.12. During Warren Buffett’s 2010 letter, he predicted that Wells Fargo would have a dividend increase. He also expected that his largest gain in dividend would come from Wells Fargo. They were forced to lower it at one point, though it was “consistently prospering throughout the worst of the recession.”

Buffett seem to have a crystal ball so to speak, but he really knew that the fundamentals and Wells Fargo’s strategy of execution would easily survive the economic turmoil. He made his biggest stock purchases throughout the five years by buying shares during the biggest stock dips. Those took place during the first quarter of 2009, the third quarter of 2009 and the third quarter of 2010. But he’s actually made his biggest purchases over the last year, all while the stock has been rising by almost 23%.

Berkshire Hathaway, the company owned by Warren Buffett, recently discovered that it owned two short line railroads, which it sold off to satisfy regulators who could have potentially reviewed the 2010 Berkshire Hathaway acquisition of Burlington Northern Santa Fe railroad.

Earlier this month, Berkshire Hathaway let the Transportation Department’s Surface Transportation Board know that it successfully completed its sale of both of the short line railroads ahead of the required schedule.

The surface transportation board would have needed to scrutinize their railroad purchase of Burlington Northern Santa Fe if Berkshire Hathaway reported owning those two railroads at the time of the purchase. Berkshire didn’t disclose owning the two railroads to the Surface Transportation Board until this past September 2012.

Buffett was left a message on Wednesday in regards to this situation, but he didn’t immediately respond to any word about the short line railroads. But, officials at both MidAmerican Energy, and Burlington Northern Santa Fe, to Berkshire Hathaway companies, confirmed that the sale of both railroads have been completed.

Prior to Berkshire Hathaway’s acquisition of Burlington Northern Santa Fe railroad, as a way to avoid problems with regulators, Warren Buffett sold 1.9 million shares of Northfork Southern Corp. and shares of Union Pacific Corp. to the tune of 9.6 million.

A spokesperson for the Surface Transportation Board was also left a message this past Wednesday in regards to this matter, but he or she did not respond to the message. But, in this past October, Berkshire Hathaway put together a plan to sell the railroads by the end of the year, and the Board seemed to be satisfied with that plan.

RVTR Rail Holdings bought WCTU from Berkshire Hathaway this December. It is a 12-mile long railroad in service of an industrial park near the area of Medford, Oregon.

The previous owner of the WCTU Railroad is Railserve Inc., and it’s a part of Marmon Holdings, an industrial conglomerate. Berkshire Hathaway has owned the majority interest in Marmon since the year 2008.

CBEC railroad, which is 6 miles long, is used to transport coal for MidAmerican Energy at a plant south of Council Bluffs, Iowa. It was sold this past November to two of the other co-owners.

The Corn Belt Power Corporation now owns 6% of the railroad, while the Central Iowa Power Corporation owns the other 94% of CBEC.

None of the companies that bought the two of the railroads from Berkshire Hathaway owns any other railroads, which helps ensure that there was not a need for any Surface Transportation Board approval for the deals to be completed.

An attorney of Burlington Northern Santa Fe, Roger Nober, mentioned that Berkshire Hathaway accidentally overlooked the small railroads in a letter sent this past September.

Berkshire Hathaway is an entirely de-centralized major conglomerate with over 80 subsidiaries, including furniture stores, manufacturing plants, clothing outlets, utility businesses, jewelry businesses and insurance companies.

Warren Buffett and some of the other top officials at Berkshire Hathaway do not have major input into the day-to-day operations of its many businesses, and the officials running these companies do not necessarily interact with Buffett and the other officials all that often.

Berkshire Hathaway also owns stock in companies like Wells Fargo, IBM and Coca-Cola.