It’s a classic example of being greedy when others are fearful. But how has that stock done since Buffett’s statement?

How’s it done?

Bank stocks were cheap in 2009 and Wells Fargo was trading at around $9 per share. It was just after the depths of the banking crisis. 

Importantly, Buffett’s exact statement was:

If I had to put all of my net worth into a stock, that would be the stock.

The Berkshire Hathaway chief didn’t say that he was going to do this. And that’s just as well. 

Since March 2009, the stock has returned around 8.2% a year. But that’s below the S&P 500, which has generated 14.8%.

So was Buffett wrong? Sort of, but the situation is a bit more complicated than a quick look at the returns lets on. 

What went wrong?

In the subsequent five years, the stock did indeed outperform by a significant margin. But it faltered in a big way after that.

In 2016, it transpired that Wells Fargo had been creating fake accounts. As a result, the firm had to operate under an asset cap for almost a decade. That caused a huge drag on returns. And that’s a big reason why the stock underperformed the S&P 500 until 2024. 

Since then, the stock has been roughly in line with the index. So maybe Buffett’s prediction wasn’t such a bad one.

Nobody’s perfect

There’s a crucial lesson here for investors that has nothing to do with Wells Fargo. Not even the best investors can foresee everything.

That’s why it’s so important to not go all-in on any one investment. Things can go wrong that are beyond your control. There’s no way Buffett in 2009 could have been expected to foresee a scandal emerging in 2016. But it had a big effect on the stock.

That means investors need to think carefully about their portfolios. Specifically, they need enough diversification to cope with these risks. 

Having a top stock idea is a great thing. But it’s important to avoid being in a position where things can all go wrong at once.

A UK example

From the UK, WH Smith (LSE:SMWH) is a recent example. Back in 2024, the stock looked pretty attractive with a growing travel business.

Unfortunately, it wasn’t. News of an accounting irregularity transpired and then developed further, which caused the stock to crash.

I owned the stock at the time. And I don’t think there was any way I could realistically have known about that at the time.

I’ve since sold it. But the situation has got even worse for continuing investors, with the conflict in the Middle East causing a profits warning.

I’m not quite sure how – I spent about £17 on not a lot in the Stansted Airport outlet the other week. But that’s the way it is.

Investing lessons

Like Wells Fargo, WH Smith is going through a repair process. And I think there’s a lot to like about the business. 

I continue to watch it and keep an eye on its recovery. But I’m very glad I wasn’t all-in on it when I was buying in 2024.

The post Warren Buffett once said he’d put 100% of his net worth in this stock. How’s that worked out? appeared first on The Twelfth Magpie.

Money laundering is illegal, and it’s a serious problem in the financial systems. Global banks often devote significant resources to fighting it to ensure that they’re not enabling criminals.

In this look at money laundering, you’ll learn what it is, how it works, and why it matters.

What is money laundering?

Money laundering is the process of making illegally gotten financial assets appear as though they were obtained legally. All kinds of criminals use money laundering, including drug dealers, terrorists, arms dealers, white-collar criminals, and thieves. Laundering makes the money they use untraceable to criminal activity.

Money laundering generally involves a three-step process. Ill-gotten money is placed with a financial institution, often offshore. This is known as placement. From there, the money goes through “layering,” which refers to a complex series of transactions to obscure the source of the money and make auditing difficult. Finally, the money is integrated in the financial system to make it appear like it was obtained legally; one common way to do this is through purchasing real estate.

Why it matters

According to the United Nations Office on Drugs and Crime, money laundering schemes account for a whopping 2%-5% of global GDP, or roughly $2trn (£1.6trn). Meanwhile, according to the identity verification group, Credas, money laundering in the United Kingdom accounts for 4.3% of GDP. That’s approximately £87.9bn of illegal funds entering the UK every year¹.

Banks and law enforcement agencies work together to fight money laundering through coordinated anti-money laundering systems and policies, know-your-customer practises so banks understand who they’re doing business with, and monitoring for suspicious transactions. Banks also rely on cybersecurity systems to deter fraud and reduce vulnerability to illegal activities.

Money laundering is a difficult problem to stop because there are so many different ways to do it, and there is so much banking activity to search through. Criminals are always looking for creative ways to launder their money and stay ahead of law enforcement.

What you should know about money laundering

Money laundering imposes a larger cost on society by giving criminals funds to run illegal activities. But these criminals can also prey on everyday citizens through phishing scams and other techniques that allow them to use your bank account to clean their money. Examples might include an email telling you you’ve won a prize or informing you that you have inherited money from a long-lost relative as a pretext for collecting your banking information. Sometimes, they even start on online dating websites.

If you suspect you’ve been the target of a money laundering scheme, the best thing to do is to cut off all communication with the criminal in question and report it to your financial institution and local law enforcement, especially if you’ve given the criminal your personal information.

Like most things in life, if an unsolicited email or offer sounds too good to be true, it probably is.

How money laundering works

There are a number of different ways to launder money, but here are some of the more famous examples.

In 2010, before its merger with Wells Fargo (NYSE:WFC), Wachovia Bank allowed drug cartels in Mexico to launder an estimated $380bn. The drug cartels smuggled US dollars back across the border to Mexico. From there, they converted them into pesos and deposited the currency into their personal bank accounts. Wachovia was eventually penalised by the US government with a $160m fine.

Similarly, drug cartels used HSBC Holdings (LSE:HSBA) to launder $1bn as they exploited the bank’s poor oversight. The bank was forced to pay a fine of almost $1.9bn.

Recently, UK banks have been getting the spotlight. Natwest Group (LSE:NWG) was fined £265m at the end of 2021 for failing to prevent £400m from being laundered through it. This actually marked the first criminal money laundering case from regulators against a British Bank. And it seems the Financial Conduct Authority is now probing Barclays (LSE:BARC) for evidence of money laundering as well.

Although money laundering doesn’t often get attention from investors, it is a significant drag on the global economy, and a major incidence of money laundering has the potential to crush a stock.

For banks, the consequences of not preventing money laundering can be expensive, adding another incentive to hire compliance and anti-money laundering personnel to reduce the risk. For financial stocks and other companies on the front lines in the fight against money laundering, ensuring proper prevention is key for maximising performance.

As investors look forward to the next bull market, money laundering remains one of several challenges facing the global economy. With improving technology and artificial intelligence, however, banks and law enforcement agencies may be able to turn the tide on these criminals.

The post What Is Money Laundering? appeared first on The Twelfth Magpie.

Ford

The first stock is Ford (NYSE:F). The company’s debt presents an investment risk that is worth considering. But despite this, I think that there might be an opportunity here from a value investing perspective.

Last year, Ford made just over $9.75bn in operating income. The company currently has a market cap of around $73.1bn. Including the company’s total debt of just under $140bn and $20.5bn in cash means an investment return of around 6% based on last year’s figures.

By itself, I think that’s okay. But the real value I see here comes from Ford’s electric pick-up, which is set to launch well ahead of its rivals. Last year, the top three selling vehicles in the US were all trucks. I think this means that the electric pick-up market will be important and Ford’s head start will prove valuable. That’s why I see Ford as a value stock to consider buying in March.

Tesco

Another stock on my value radar is Tesco (LSE:TSCO). The company typically produces around £2.5bn in operating income. Right now, it has a market cap of just under £22bn. It has £15.67bn in total debt and £2.4bn in cash. Since Tesco is a fairly stable business, this brings me to expect a return of around 7.5% annually from the underlying business.

Tesco’s current assets don’t cover its current liabilities. For many, this is seen as risky. It means that the company isn’t as financially flexible as it might be. I view it as a strength, though. It means that the company is able to sell the goods it purchases before it has to pay its suppliers for them. I think that Tesco is a stable business trading at a great price. That’s why it makes my list of value stocks to buy in March.

Wells Fargo

Last on my list of value stocks to buy in March is Wells Fargo (NYSE:WFC). The company currently trades at a price-to-book (P/B) ratio of around 1.25 and has a return on equity of around 12%, which implies a business return of around 9% annually. Wells Fargo has been facing two major headwinds. The first is low interest rates, which pressure margins on its core business. The second is that it has been operating under an asset cap due to its past misdemeanours.

I think that these headwinds might be about to abate, though. I expect US interest rates to rise steadily and I expect Wells Fargo to meet the conditions for its asset cap to be lifted. The risk with this investment comes from how soon either of these might happen. But even if these take longer than anticipated, I think that the business will do well over the long term. This is why it makes my list of value stocks to buy in March.

The post 3 dirt-cheap value stocks to buy in March appeared first on The Twelfth Magpie.

https://youtu.be/fLaJRrasnm8

In this investing video from the Motley Fool, Owain Bennallack looks at the fortunes of Wells Fargo (NYSE: WFC.US) and makes a comparison with Lloyds (LSE: LLOY) (NYSE: LYG.US).

The post Lloyds Banking Group PLC Can Learn From Wells Fargo & Co appeared first on The Twelfth Magpie.