Warren Buffett appears to be making strategic moves in the market. Since mid-July, his company, Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B), has been significantly reducing its stake in one of its major investments, Bank of America (NYSE: BAC), selling off more than $7 billion worth of shares in less than two months. Why the sudden shift?
Buffett's Shift Away from Bank of America
For years, Bank of America has been a favorite of Buffett, consistently holding one of the top spots in Berkshire's portfolio, just behind Apple. His initial purchase dates back to 2007, right before the 2008 financial crisis.
Buffett has always maintained that Bank of America was a solid, long-term bet. After selling a portion of his stake post-crash, he invested a substantial $5 billion into the bank, receiving preferred shares and warrants to buy 700 million shares at just over $7 per share before 2021. This move paid off handsomely, netting Buffett a paper profit of $12 billion six years later. Since then, heâs been the bankâs largest shareholder and a consistent buyerâuntil now.
So, why the sudden change of heart?
A Defensive Play?
While we can't know for sure, there are plausible reasons behind the recent sell-off. Bank profits tend to be cyclical, often thriving during economic expansion and underperforming during recessions. With growing concerns over the U.S. economy, including troubling job reports, rising consumer credit levels, and the market's "casino-like" behavior (as Buffett himself described it), Berkshire could be playing it safe, building up its cash reserves.
Itâs not just Bank of America that Berkshire is reducing its exposure toâother stocks are being sold off as well. Some speculate that Buffett might be taking profits ahead of potential tax increases. Or it could be a mix of multiple factors, including managing risk and preparing for market uncertainty.
Buffettâs Faith in Berkshire Hathaway
Despite trimming various holdings, one stock Buffett continues to favor is his own: Berkshire Hathaway. In the most recent quarterly report, Buffett revealed the company had repurchased $345 million worth of its own shares, bringing total share buybacks for 2024 to nearly $3 billion. Since 2018, Berkshire has repurchased nearly $80 billion worth of its stockâa clear sign of confidence in its future.
Berkshire doesnât pay dividends, but by buying back shares, the company rewards its shareholders by increasing their ownership stake as the total share count declines. Itâs a strategy Buffett uses when he believes the stock is trading below its intrinsic value.
Under his leadership, Berkshire Hathaway became the first U.S. non-tech company to surpass a $1 trillion market cap, though it has since dipped slightly below that mark. With a diverse portfolio managed by one of the sharpest teams in the business, Berkshire has consistently outperformed the market over the years.
Should You Invest in Berkshire Hathaway Now?
Before considering an investment in Berkshire Hathaway, you should be aware of this:
While Berkshire remains a top pick for many investors, recent analysis from The Motley Fool identified 10 stocks that they believe hold even greater potential for growth. For example, their April 2005 recommendation of Nvidia would have turned a $1,000 investment into $716,375 today.
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