What’s going on at Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B)? Over the past few months, the “Oracle of Omaha” has given his company one of its largest holdings. ordered the sale of about $10 billion in stocks that are popular among institutional investors. The sale comes as Berkshire has its largest ever pile of cash on its books. What does Warren Buffett know that Wall Street doesn’t?
Buffett has built a patient and disciplined investing career that focuses less on picking great stocks and more on supporting great companies over the long term. As he says, “When you find a really great business, stick with it. Patience pays off.” His philosophy has made him one of the richest people on the planet. So investors pay attention when he makes big moves, such as selling about a quarter of his largest holdings.
Berkshire sells nearly $10 billion in Bank of America stock
The company in question, Bank of America, has been a key part of Berkshire’s portfolio since Mr. Buffett helped turn the bank around after the financial crisis. He paid $5 billion for preferred stock, giving him the right to buy an additional 700 million shares by 2021 at just over $7 a share.
Despite the state of banking at the time, Buffett had faith. His patience and foresight paid off, and six years later he exercised the warrants for a paper profit of $12 billion. Mr. Buffett remained a buyer of Bank of America until this year when he began selling some of his more than $40 billion in stock.
The bank’s stock took a hit when the offering began in July, but the stock is up nearly 9% from its low since the offering began, even as Berkshire continues to offload. Many on Wall Street seem to believe Bank of America is moving in the right direction, so why would he sell?
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Buffett has remained tight-lipped, declining to comment in detail on the deal. There’s no way to know for sure what he’s thinking, but you can make an educated guess. I think it has more to do with his larger strategy than Bank of America itself. As it turns out, these aren’t the only holdings that have been cut this year. Berkshire also sold billions of dollars in Apple stock.
He may be worried that the market is overvalued and wants to get his company ready. He finds it increasingly irrational. “The market is behaving much more like a casino than it did when (he) was younger,” he said in his 2023 letter to shareholders.
If that’s true, there is certainly the potential for a major economic event to occur. Given that Buffett believes Berkshire should play a role in the event of a sharp downturn in the economy, Berkshire has a large amount of liquid assets that can not only protect itself but also “put out financial fires.” A huge amount of preparation is required. As Mr. Buffett wrote last year.
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This is possible, but I think there are more benign reasons at play. I think Buffett simply believes that while Apple and Bank of America are still great companies, they don’t have the upside he’s hoping for going forward. Better opportunities exist. He may be planning another large purchase or series of purchases. We’ll have to wait and see. However, there is one stock he continues to buy, and he bought $345 million in the last quarter.
Warren Buffett’s favorite stocks are his own
Berkshire has bought back nearly $3 billion in stock since the beginning of the year. Since the company does not issue dividends, this is one of Buffett’s main ways to reward shareholders. Buffett can only buy back his own stock if he believes it is currently undervalued, so continued buybacks are a good sign that he believes in his company. If he buys the stock, Berkshire will have the implicit blessing of one of the greatest investors of all time.
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Bank of America is an advertising partner of The Motley Fool’s Ascent. Johnny Rice has no position in any stocks mentioned. The Motley Fool has positions in and recommends Apple, Bank of America, and Berkshire Hathaway. The Motley Fool has a disclosure policy.
Does Warren Buffett know something Wall Street doesn’t? Billionaire legend buys $345 million in his favorite stocks while dumping $9.6 billion in key assets . Originally published by The Motley Fool
