Warren Buffett and his company Berkshire Hathaway (BRK.A 0.10%)(BRK.B 0.66%) meticulously worked their way through the pandemic and have emerged in much stronger shape than before. Berkshire's stock price has hit new highs and is soundly ahead of most of the major market indexes so far in 2022.
A large piece of Berkshire's business is its equities portfolio, which is valued at about $349 billion. During the pandemic, Buffett and Berkshire actually did more selling than buying. Let's take a look at three stocks Berkshire sold and how they are doing now.
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1. Goldman Sachs
Buffett and Berkshire first got involved with Goldman Sachs (GS +0.90%) in 2008 when the investment banking giant run into trouble during the Great Recession. Berkshire gave Goldman $5 billion in exchange for preferred shares that paid a 10% dividend. Berkshire also received warrants to purchase $5 billion of common shares that had a strike price of $115. Eventually, the preferred shares would be redeemed, and Goldman and Buffett would renegotiate the warrants agreement that would ultimately give Buffett more than 13 million shares.
NYSE: GS
Key Data Points
During the pandemic, Buffett eliminated its stake in Goldman during the first half of 2020, along with several other banks. At Berkshire's annual shareholder meeting in 2021, Buffett attributed his decision to sell many of his bank holdings, not because he was worried about them but because he thought Berkshire had too much exposure to the sector with so much uncertainty in the air. It's easy to look back knowing what we know now and say Buffett made a mistake, but remember that the situation was incredibly uncertain early in 2020, and nobody knew exactly what might happen.
Goldman ultimately would end up flourishing. Profits surged as investment banking and sales and trading took off in 2020 and 2021. Goldman would see its stock hit nearly $420 in August 2021, and it now trades at $337 per share, both numbers that are higher than pre-pandemic levels.
While investment banking and sales and trading revenues are expected to normalize, management believes the opportunity in those businesses is larger now than before the pandemic. Additionally, the bank has been expanding its consumer banking businesses and wealth and asset management to create more durable earnings streams. Overall, Goldman looks to be in solid shape.
2. JPMorgan Chase
Berkshire's decision to cut its entire stake in JPMorgan Chase (JPM +0.01%) certainly caught me by surprise. By the end of 2019, Berkshire had accumulated roughly 59 million shares valued at about $8.3 billion. Buffett formally eliminated America's largest bank from Berkshire's equities portfolio in the fourth quarter of 2020 but had cut most of his position in quarters leading up to that.
What was surprising about the move is that Buffett couldn't get enough of JPMorgan before the pandemic. The Oracle of Omaha previously said he should have bought JPMorgan sooner and that Chief Executive Officer Jamie Dimon was underpaid when asked about the CEO's high compensation.
NYSE: JPM
Key Data Points
JPMorgan also did very well during the pandemic, all things considered. The bank's powerhouse corporate and investment banking division picked up the slack for the struggling consumer bank division. It also turns out that JPMorgan had more than enough capital to deal with some pretty extreme levels of loan losses that never came to pass.
After the worst of the pandemic, JPMorgan's stock hit new highs, although the shares have since come down more toward pre-pandemic levels as U.S. economic growth forecasts have been lowered and as expenses at the bank have climbed. I would still call the bank best in breed.
I doubt Berkshire's dumping of JPMorgan had anything to do with concern about the company's financial stability. Rather, I think Buffett wanted to lower his exposure to the banking sector and ultimately picked Bank of America as his large money center bank to invest in. Buffett invested more in Bank of America during the pandemic and has maintained that position.
3. Synchrony Financial
Buffett never held a huge stake in the consumer lender Synchrony Financial (SYF +1.36%) but eliminated his $700 million position in the company in the first quarter of 2021. This is probably the least surprising cut of the three stocks here. We knew Buffett had gotten more selective about his bank exposure, and we also know that Buffett loves American Express. If he had to pick a consumer/credit card company, there's no way he was ever going to pick Synchrony over American Express.
NYSE: SYF
Key Data Points
Like JPMorgan, Synchrony hit new highs in 2021 but the shares have since fallen back closer to pre-pandemic levels. The company partners with a lot of big retailers to issue credit cards at the point of sale and drive more purchases, so it will likely do better as more COVID restrictions are lifted.
However, consumers may run into trouble if inflation remains high, or if the economy runs into a recession or stagflation. Synchrony is not necessarily in bad shape, but investors should keep an eye on this evolving consumer trend.
