Is Wells Fargo a good long term investment?

Hey guys. Im fairly new to investing. I watched all of Prestons Videos on youtube so i more or less have a bit of understanding. I checked out Wells Fargo and thought they looked quite good company but the only downside i saw was the D/E ratio higher than 0.5. Can anyone give me advice if they are worth investing in and if not can you explain why. Thanks

Answers

  • New to investing too so take what I say with a grain of salt. In short, I am staying away. It's not due to the 0.5 cutoff for D/E ratio which may or may not be a great metric for financial institutions given the leverage they deal with. Although I generally stay away from financial institutions because I'm not that great at reading their balance sheets yet, I was interested in $WFC given their reputation from the 1990s and how some smart people made good money by investing in them back then. In fact, $WFC was on my list to invest when the next correction occurs till this past Aug/Sept. The whole fraud thing was red flag #1.

    However, big red flag #2 was that while WFC stock doubled in price during the last 4 years, stock buyback by the company increased 900% during those 4 years. If management cared about the business, why would they be increasing their buybacks by 900% when the stock was at all time highs. Why would the insiders (i.e. CEO etc) be exercising their stock options and then selling pretty much the same amount back to the company over the last two years (see Morningstar page for WFC). Could it be that the managers were artificially inflating stock through questionable practices and then cashing out that forced WFC into buybacks and depleting shareholder equity in the process? Tolstedt sold 177 million in stock options over the last 4 years. The CEO sold 523 million in stock over the last 4 years of which 237 million was sold between 6/16 and 8/16.Chart below is CEO selling of stock on a per month basis. Nothing really between 1/15 and 2/16. But looks to go up pretty quick around May 2016 (a month in which he sold 128 million in stock). I thought they first discovered the fraud and self reported in July 2016. Coincidence? (Double check my numbers as I'm still learning this stuff just in case I'm wrong.)

    <img src="https://forums.theinvestorspodcast.com/uploads/editor/m2/q26qtzc44c0k.png" alt="" />

    I've said WTF about this stock so many times over the last 2 months about the company that I now call the ticker $WTFC instead of $WFC.
  • Interesting points mspiotto...

    I'm also curious about the the recent scandal and the impact of opening deposit accounts has in relation to WFC's bottom line and how it ultimately impacts their ROE. I was under the impression that for every dollar that a bank takes in they are then able to loan out 9x or so of that same amount as loans to consumers. I need to brush up on this... (credit: The Creature from Jekyll Island) and read up on the scandal a bit more to see if these accounts that were opened are subject to this rule or not.

    I'm curious about this because it would help identify if this issue is a temporary one or something that they potentially may not recover from for several years.

    Anyone have any additional insight?

    Regards,

    James.
  • I bought a ton of WFC during the peak of the financial crisis due to it being a coveted Warren Buffett stock. With Dow 21k and recent scandal now involving criminal probes could we be seeing a huge pull back? I know warren said he hasn't sold any stock in WFC but is risk reward getting out of line where I should sell 25-50% of my holding? Is now the time to stay in WFC with just the houses money?
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