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The Q2 Moves Warren Buffett Is Most Likely to Regret

By Keith Speights – Aug 19, 2020 at 6:08AM

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Even an investing legend can make questionable choices now and then.

Warren Buffett was a busy billionaire in the second quarter. He and his lieutenants made quite a few adjustments to the Berkshire Hathaway (BRK.A -1.14%) (BRK.B -1.07%) stock portfolio, with a lot more selling going on than buying.

Most of Buffett's investing decisions in Q2 make sense. For example, buying back over $5 billion worth of Berkshire shares appears to be a smart move in view of the conglomerate's attractive valuation. Selling shares of airlines and several energy companies also seems wise in light of the new market dynamics created by the COVID-19 pandemic.

But there were some choices that he made in the quarter that don't look as sensible -- at least not for investors with long-term perspectives. I suspect that the Oracle of Omaha will come to regret two sales in particular. 

Warren Buffett with people in the background

Image source: The Motley Fool.

Buffett's bad moves

Berkshire Hathaway's recent 13-F filing with the Securities and Exchange Commission revealed that it reduced its holdings of payment processing giants Mastercard (MA -0.28%) and Visa (V 0.25%).

At the end of the first quarter, Berkshire owned a little over 4.93 million shares of Mastercard and nearly 10.6 million shares of Visa. But the company sold 398,582 shares of Mastercard in the second quarter along with 575,000 shares of Visa.

Granted, Berkshire still owns sizable stakes in both companies. Its position in Mastercard was worth $1.35 billion at the end of Q2, and its stake in Visa was valued at nearly $1.93 billion.

There have been no public comments from Buffett or Berkshire about those stock sales, so the reasoning behind the transactions isn't fully known, although Berkshire also reduced its positions in several banks.

An unstoppable trend

What's the problem with Buffett guiding Berkshire Hathaway to trim its positions in Mastercard and Visa? Nothing at all -- if the stocks are likely to decline over the long run. But I don't think that's the case whatsoever with either of them.

The share of transactions being conducted with cash and checks will continue to fall as the adoption of digital forms of payment keeps rising. As a duopoly in payment processing for credit cards, Mastercard and Visa are poised to profit from this unstoppable trend.

You might speculate that perhaps Berkshire solid part of its stakes in these companies due to the negative impacts from the COVID-19 pandemic. But the coronavirus outbreak is only speeding up the shift toward e-commerce. The more of our shopping that we do online, the more Mastercard's and Visa's credit cards and payment systems will be used.

"The COVID crisis has driven an acceleration in the use of electronic forms of payment with much greater adoption of digital and contactless solutions," said Mastercard CEO Ajay Banga during the company's Q2 conference call. "Now we believe those will sustain beyond the pandemic, and we believe we are very well positioned to capitalize on those." 

Sure, both Mastercard and Visa are feeling some pain from the pandemic. However, this will only be short term. The long-term dynamics for the companies are as strong as ever -- and arguably even stronger.

Even the Oracle can't be right 100% of the time

Buffett has made a lot more good decisions than he has made bad decisions during his career. But even billionaires can blow it every now and then.

The good news is that Berkshire should still generate big gains over the long run if it holds onto its significant positions in Mastercard and Visa. I suspect that's exactly what it will do.

The great news is that you can still buy both stocks and rake in strong returns over the long term, too. And if you don't sell too early, you can brag that you made a better investing decision than one of the greatest investors there ever was.

Keith Speights owns shares of Berkshire Hathaway (B shares) and Mastercard. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares), Mastercard, and Visa and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), and short September 2020 $200 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.

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