58 THE WARREN BUFFETT WAY
California banks in droves. At the time, the West Coast was in the
throes of a severe recession and some speculated that banks, with their
loan portfolios stocked full of commercial and residential mortgages,
were in trouble. Wells Fargo, with the most commercial real estate of
any California bank, was thought to be particularly vulnerable.
In the months following Berkshire’s announcement, the battle for
Wells Fargo resembled a heavyweight f ight. Buffett, in one corner, was
the bull, betting $289 million that Wells Fargo would increase in value.
In the other corner, short sellers were the bears, betting that Wells Fargo,
already down 49 percent for the year, was destined to fall further. The
rest of the investment world decided to sit back and watch.
Twice in 1992, Berkshire acquired more shares, bringing the total
to 63 million by year-end. The price crept over $100 per share, but
short sellers were still betting the stock would lose half its value. Buffett
has continued to add to his position, and by year-end 2003, Berkshire
owned more than 56 million shares, with a market value of $4.6 billion
and a total accumulated purchase cost of $2.8 billion. In 2003, Moody’s
gave Wells Fargo a AAA credit rating, the only bank in the country
with that distinction.
THE INTELLIGENT INVESTOR
The most distinguishing trait of Buffett’s investment philosophy is the
clear understanding that by owning shares of stocks he owns businesses,
not pieces of paper. The idea of buying stocks without understanding
the company’s operating functions—its products and services, labor re-
lations, raw material expenses, plant and equipment, capital reinvest-
ment requirements, inventories, receivables, and needs for working
capital—is unconscionable, says Buffett. This mentality ref lects the at-
titude of a business owner as opposed to a stock owner, and is the only
mentality an investor should have. In the summation of The Intelligent
Investor,Benjamin Graham wrote, “Investing is most intelligent when
it is most businesslike.” Those are, says Buffett, “the nine most impor-
tant words ever written about investing.”
A person who holds stocks has the choice to become the owner of a
business or the bearer of tradable securities. Owners of common stocks
who perceive that they merely own a piece of paper are far removed