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If Grandma knew we sold her darling Wells Fargo (though it is was only 1/8 of the position) she might disown me. Since the mid-1980's when Grandma bought a small Minnesota bank that was subsequently purchased by Wells Fargo (WFC), our family position in the bank has appreciated over 3,000%. For perspective, the annual amount in dividends received from our Wells Fargo position is greater the total cost basis.
WFC has been known for its efficient business model built on cross-selling products to existing customers; if a customer used WFC for one banking service, WFC would not be satisfied until that customer used eight WFC banking services. Unfortunately, WFC was not just a great operator, they were a ruthless employer whose employees felt compelled to create fraudulent accounts for customers to meet sales goals. Ultimately WFC fired over 5,000 employees related to this issue - roughly 5% of their branch-based workforce. This throws a wrench in our investing thesis.
Banking may be a very sticky business, and WFC may be able to retain most of its customers, but if WFC has been systematically committing fraud it can no longer be the cornerstone of our portfolio. WFC was roughly 10% of our family portfolio, by far our largest position. Due to tax implications I have been reluctant to liquidate more of the position, but we have reduced our position by 12.5% and it will further reduced in the near future.
I never thought I would feel so compelled to dispose of WFC: it was the bank of Buffett, his largest holding; WFC was solid through the financial downturn, and actually grew substantially through its Wachovia acquisition; WFC even begged Uncle Sam to repay its TARP loan in 2009. This was a valuable lesson to learn. Though skilled investors brag about their ability to maintain a concentrated portfolio, never again will I allow one company to become such a large portion of our portfolio. Grandma may have always been a buy-and-hold investor, but it is time to sell WFC.