What’s going on with Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B)? In recent months, the “Oracle of Omaha” has ordered his company to dump nearly $10 billion from one of the largest holdings and a popular stock among institutional investors. The sales come as Berkshire sits on the largest pile of cash it has ever kept on its books. What does Warren Buffett know that Wall Street doesn’t?
Buffett has built a career on patient and disciplined investing, focusing on backing great companies for the long term rather than picking great stocks. As he puts it, “If you find a really great company, stick with it. Patience pays off.” His philosophy has made him one of the richest people in the world. So investors pay attention when he makes big moves, such as waiving roughly a quarter of one of his largest assets.
Berkshire is selling nearly $10 billion worth of Bank of America stock
The company in question Bank of Americahas been a key part of Berkshire’s portfolio since Buffett helped keep the bank afloat in the wake of the financial crisis. He paid $5 billion for preferred stock and warrants to buy another 700 million shares before 2021 at just over $7 per share.
Despite the bank’s condition at the time, Buffett was confident. His patience and foresight paid off and he exercised the warrants six years later for a paper profit of $12 billion. Buffett remained a net buyer of Bank of America until this year, when he began selling off portions of his company’s more than $40 billion worth of stock.
When the sales began in July, the bank’s stock price took a hit, but despite Berkshire’s continued unwinding, shares are up nearly 9% since the low after the sales began. Why is he selling when much of Wall Street seems to believe Bank of America is heading in the right direction?
Worries about the macro image, but it could be simpler than that
Buffett remains tight-lipped and declines to comment in detail on the transactions. While we don’t know for sure what he’s thinking, we can make an educated guess. I think it has less to do with Bank of America itself than with its broader strategy. After all, it’s not the only company that got cut this year. Berkshire has poured in billions Apple stock too.
He may be concerned that the market is overvalued and wants to prepare his business. He finds it increasingly irrational. In his 2023 shareholder letter, he said that “the markets are exhibiting much more casino-like behavior now than they were then [he] was young.”
If true, a major economic event is certainly possible. Given that Buffett believes Berkshire must play its role in helping the economy in the event of a sharp downturn, the company needs a huge reserve of liquid assets that will allow it to not only protect itself, but also to ‘help put out the financial fire’. as Buffett wrote last year.
While this is possible, I think there is a more innocent reason at play. I think Buffett simply believes that both Apple and Bank of America, while still great companies, don’t have the upside he’s looking for moving forward. There are better options. He may be setting up another major purchase or series of purchases. We’ll have to wait and see. However, there is one stock he continues to buy, of which he bought $345 million last quarter.
Warren Buffett’s favorite stock is his own
Since the beginning of the year, Berkshire has repurchased nearly $3 billion of its own stock. This is one of the main ways that Buffett rewards his shareholders, as the company does not pay dividends. The continued buybacks are a good sign that he believes in his own company, as Buffett can only buy back his shares if he believes they are currently undervalued. When he buys shares, Berkshire has the implicit blessing of one of the best investors in history.
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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Johnny Rice has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Apple, Bank of America and Berkshire Hathaway. The Motley Fool has a disclosure policy.
Does Warren Buffett know something that Wall Street doesn’t? The billionaire legend dumps $9.6 billion in key holdings while buying $345 million of his favorite stocks. was originally published by The Motley Fool
