Warren Buffett, as chairman of Berkshire Hathaway, has given investors one big reason to pay attention to his every move. And that's his success in investing over time. The billionaire has led Berkshire Hathaway to a compounded annual gain of more than 19% over the past 58 years -- that's compared to a compounded increase of 10% for the S&P 500 index.
Buffett doesn't mind sharing his investment philosophy, and comments regularly about his commitment to quality companies over the long term and his general belief in these companies -- through both bull markets and bear markets. You won't find Buffett selling one of his favorite stocks just because the market is going through a downturn, for example.
But, in recent times, this generally optimistic investor has made two moves that might make you think twice before you start loading up on stocks. Are these Buffett decisions a warning for investors? Let's find out.
Image source: The Motley Fool.
Berkshire Hathaway's biggest holdings
First, a quick mention of the biggest holdings in Berkshire Hathaway's $279 billion stock portfolio. These are, in order of value, Apple (AAPL 0.03%), Bank of America (BAC +1.70%), American Express, and Coca-Cola. Earlier this year, in Buffett's 2023 letter to shareholders, he wrote favorably about the dividend growth policies of American Express and Coca-Cola and predicted he would leave his holdings of these two favorites untouched this year.
As a matter of fact, Buffett likened his holding of American Express and Coca-Cola to a "Rip Van Winkle slumber" that's gone on for more than two decades.
But that slumber didn't extend to the other top two in the Berkshire Hathaway portfolio. And this is where we get to Buffett's two recent moves. Buffett surprised investors in the second quarter when he cut his stake in Apple by 49% to 400 million shares. The billionaire initially bought Apple shares in 2016 and has continued to speak favorably about the company and its leader Tim Cook -- even calling him "Apple's brilliant CEO" in his shareholder letter a couple of years ago.
The Apple sale was announced as part of Berkshire Hathaway's 13F quarterly filing with the Securities and Exchange Commission (SEC). These are required disclosures for managers overseeing more than $100 million and offer investors a glimpse into their investment philosophy. More recently, Buffett informed the market of another series of sales, through Form 4 filings with the SEC -- these are meant to show changes in ownership by company insiders, or those who own at least 10% of outstanding stock.
15 separate sales of a favorite stock
Berkshire Hathaway filed five Form 4 documents last month to report 15 separate sales of Bank of America stock. In just a month, Buffett cut his holding in the company by 8% to about 802 million shares. And that's down by 22% from the end of the second quarter.
Bank of America is another one of Berkshire Hathaway's long-term holdings, and one, Buffett wrote in the 2015 shareholder letter, "we value highly."
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Key Data Points
So, why is Buffett selling shares of two of his favorite stocks -- and should investors take this as a warning sign? We don't have an exact explanation for these sales. But Buffett did suggest at the Berkshire Hathaway annual meeting back in May that he expects an increase in the capital gains tax rate -- and that shareholders may appreciate sales of Apple, for example, today at the current 21% rate. This also could be Buffett's reason for reducing his holding in Bank of America.
This means Buffett's move isn't due to a loss in faith in the market or these particular stocks. Buffett isn't fleeing the entire market or his favorite players but instead has made what may be a smart strategic move to benefit from a lower tax rate.
Should you follow? If you're heavily invested in stocks, you could lock in some gains here and there at the current rate -- but I wouldn't take this money out of the market permanently. What I mean by this is I would set these funds aside to invest in other stocks that may be trading at interesting valuations today or in the coming weeks and months. Knowing Buffett's love of value stocks, that may be what he's preparing to do too.
