Warren Buffett once said, "If you aren't willing to own a stock for 10 years, don't even think about owning it for 10 minutes." Most of the stocks that Buffett-led Berkshire Hathaway (BRK.A -0.64%) (BRK.B -0.81%) buys, it holds for years -- but not all of them.
Berkshire opened a position in Pfizer (PFE -5.12%) in the third quarter of 2020. In a regulatory filing last week, though, Berkshire revealed that it had dumped all of its shares in the big drugmaker. Pfizer became one of 37 stocks Buffett sold last year and one of 15 of which he completely exited. Now that Buffett has sold all of his Pfizer stock, should investors who aren't billionaires follow suit?
Why, Warren, why?
Many investors are wondering why Buffett closed out Berkshire's position in Pfizer so quickly. It's first important to note that Buffett might not have made the decision himself. He has increasingly delegated authority to Berkshire's investing managers Todd Combs and Tedd Weschler in recent years. However, Buffett presumably went along with the decision to sell Pfizer, even he didn't personally call the shot.
Unfortunately, Berkshire doesn't include footnotes in its regulatory filing with the Securities and Exchange Commission (SEC) that explain the reasoning behind each of its stock trades. Buffett (or perhaps Combs or Weschler) will sometimes make a public remark giving the context behind Berkshire's purchase or sale of a given stock. However, that's the exception, not the rule.
I think it's unlikely that any of these men will comment on the Pfizer sale. The big pharmaceutical company wasn't a major holding for Berkshire. Sure, Berkshire reported a value of $136.2 million for its more than 3.7 million shares in its Q3 13F-HR filing to the SEC, but that's only a drop in the bucket for the huge conglomerate.
Cross these off the list
We can't know for sure why Buffett or his lieutenants opted to exit the position in Pfizer. However, we can cross some possible reasons off the list.
Buffett clearly hasn't soured on all big pharma stocks. Berkshire bought more shares of AbbVie, Bristol Myers Squibb, and Merck (NYSE: MRK) during the fourth quarter.
It also wasn't a situation where Berkshire decided to cut its losses. Pfizer's average share price during the fourth quarter was higher than in the third quarter.
Did Pfizer's business prospects change for the worse? Not really. Sure, the company reported disappointing results from a late-stage study of Ibrance in November. However, those results basically just confirmed what investors already expected after another clinical setback for the breast cancer drug earlier in 2020.
In several ways, Pfizer's prospects improved during Q4. The company completed its merger of Upjohn with Mylan, moving a block of legacy drugs with declining sales off its books. Pfizer won emergency use authorization (EUA) for COVID-19 vaccine Comirnaty (BNT162b2) in the U.S. and in Europe. It lined up major supply deals for Comirnaty totaling in the hundreds of millions of doses. The company also reported good news for several of its pipeline programs.
All we can do is guess why Berkshire sold all of its Pfizer shares. I think the most plausible explanation is simply that Buffett and his team thought they could get a higher return by investing in other stocks.
Follow Buffett's advice
Returning to our original question, should investors sell Pfizer because Buffett did? The answer to that question is a resounding "no." Your investment goals could be (and probably are) very different from a $569 billion holding company.
Many investors bought Pfizer stock for its dividend. That dividend still looks attractive. Others bought shares because they thought Pfizer's growth prospects would increase after the Upjohn-Mylan transaction closed. That's still a good assumption. Still others probably invested in the drugmaker because of its potential to make a lot of money off of its COVID-19 vaccine. The sales potential for the vaccine is greater now than it's been in the past thanks to new orders flowing in.
Are there other stocks that might pay a higher dividend yield or deliver greater growth? Absolutely. But that was the case throughout the last year -- including when Berkshire bought its initial stake in Pfizer.
I think that you should follow Buffett's advice, but not necessarily his example. If you were willing to own Pfizer for 10 minutes, be willing to own it for 10 years.