Back in 2009, Warren Buffett gave the name of one stock he’d be willing to put 100% of his net worth in. The stock was Wells Fargo (NYSE:WFC).
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.
