NEW YORK (

TheStreet

) - Some high-profile financiers got more bullish on

Wells Fargo

(WFC) - Get Report

shares last quarter, tempting retail investors to mimic their moves.

It's not surprising that

Warren Buffett's

Berkshire Hathaway

(BRK.A) - Get Report

has long held stock in Wells Fargo, now one of the country's largest banks, which has a premiere franchise with a rich history. It's a quintessential American stock that has held up well through the crisis, and a company whose earnings had increased at a steady clip for many years. Buffett likes those types of investments.

Last quarter, Berkshire bought another 6.7 million of Wells Fargo's common shares. The firm now holds 320 million common shares, or roughly 6.7% of total outstanding shares. Buffett may have acquired more stock to maintain Berkshire's position as Wells' largest individual holder, while the company issued 426 million new shares to

repay TARP.

Buffett was none too happy about the related dilution, and, indeed, the market value of his Berkshire holdings dropped by $127.5 million to $7.2 billion, despite his bullish stance, from where it stood at the end of the third quarter.

John Paulson, too, was a big buyer of Wells Fargo stock last quarter, through his hedge fund Paulson & Co. (view

Paulson's portfolio

). Paulson's move might be more interesting, since he went from holding no Wells stock in the third quarter to buying 17.5 million in the last three months of 2009. And while Buffett has a long history of simple but wise investment decisions, the market may be even more interested in what Paulson thinks of financial stocks, since he is renowned for being one of the few to bet against the housing bubble at its peak.

Still, it's worth noting that those investment decisions were made during the fourth quarter, and few investors make money by looking in the rearview mirror. There's a bearish case to be made for Wells Fargo stock -- at least in the near-term -- one that became more evident after it reported

fourth-quarter results

on Jan. 20.

While Wells has consistently beat earnings expectations in recent quarters, some investors have remained skeptical. While few doubt the revenue-generating capability that management often touts, some are understandably skeptical that it could be quite THAT strong.

For instance, it's unsurprising that

Goldman Sachs

(GS) - Get Report

was able to post rockstar profits last year, because despite its bank-holding-company status, it still operates largely as an investment bank, and its market savvy is well documented.

On the other hand, Wells Fargo is largely a consumer bank, which some does wholesale banking and asset management as well. Few of the businesses to which it has massive exposure -- such as housing and, to a lesser extent, commercial real estate -- have been doing well. In fact they've been doing quite poorly. Mortgage modifications and deep initial write-downs on Wachovia's toxic assets can't entirely account for Wells Fargo's stellar performance.

In fact, Wells Fargo's mortgage business has been doing surprisingly well -- in part because it took hold of the refinancing boom early and quickly, becoming the country's top servicer by its own account. But it also earned a pretty penny by making bets on which way interest rates are headed, and other types of hedges

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to support its large mortgage-servicing business.

Rochdale Securities analyst Richard Bove notes that hedges related to Wells Fargo's mortgage-servicing rights made up an increasing amount of Wells Fargo's profits as the year progressed.

Mortgage-servicing hedges accounted for $6.8 billion, or 38%, of Wells Fargo's pre-tax earnings for all of 2009. In the second half of the year alone, as the refinancing wave abetted and the outlook for a Federal Reserve interest-rate hike became more certain, those bets accounted for over 51% of Wells' pre-tax income. In just the fourth quarter, they accounted for 53%.

Indeed, Wells Fargo management has explicitly said that it

making more aggressive bets

that interest rates will soon rise. This is in line with a direct advisory from banking regulators, and makes sense. But Bove points out that investors betting on Wells Fargo shares appear to be betting increasingly on management's judgment about market moves than about the core business of lending.

"It seems clear that the bank is heavily relying on its judgments concerning interest rate direction to offset weak operating results," says Bove. "To date, management has been very adept at doing this. It has demonstrated above average acumen in this regard. Plus, it looks like the successes of the past will continue, further augmenting earnings."

Still, the analyst believes this represents a "conundrum" in reviewing the company's results. As a result, Bove maintains a sell rating on Wells Fargo stock, citing a "higher than normal level of risk in adopting this view."

And while Buffett and Paulson were actively buying up Wells Fargo stock, a few other prominent fund managers weren't, and at least one was selling. George Soros's

Soros Fund Management

hedge fund -- albeit a far smaller holder of Wells Fargo stock -- sold 6,700 shares during the fourth quarter. Bill Ackman's

Pershing Square

doesn't hold any Wells Fargo shares, nor does David Einhorn's

Greenlight Capital

.

Based on Wednesday's close at $27.33, Wells shares were up about 1.5% in 2010, a better performance than big bank peers

Bank of America

(BAC) - Get Report

, up less than 1%,

Citigroup

(C) - Get Report

, which is essentially flat, and

JPMorgan Chase

(JPM) - Get Report

, down almost 4%.

--

Written by Lauren Tara LaCapra in New York