When Does Warren Buffett Decide to Sell Stocks?

1 November, 2024

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“The Sage of Omaha,” who always prioritized holding stocks forever, is usually only motivated to divest from a large position when he assesses that the company’s competitive advantage has diminished.

At Berkshire’s 2009 annual meeting, Buffett shared his investment philosophy: “We’re reluctant to sell. If the original decision was reasonable, we’re unlikely to sell for a long time, and we’ve owned some stocks for decades.” However, he also emphasized: “But if the competitive advantage disappears, if we lose confidence in management, or if our original analysis was wrong—which does happen—we will sell.”

A classic example of this philosophy is Buffett’s investment in newspapers such as the Omaha World-Herald and the Buffalo News in the 1970s. Initially, he believed that their franchises were invincible. But by the early 2000s, his views on the industry had changed dramatically. The decline in advertising revenue and the shift to digital platforms had severely eroded the newspapers’ profits. As a result, Buffett decided to sell off about 30 of his newspapers in early 2020.

**Selling Bank of America**

Many of Berkshire Hathaway’s top stock investments have spanned decades—Buffett has held Coca-Cola stock since 1988 and American Express since 1991. This may explain why the 94-year-old investment legend recently raised eyebrows by selling off about $9 billion worth of Bank of America (BofA) stock in a sell-off that began in mid-July.

Thirteen years ago, Buffett bought $5 billion worth of preferred stock and warrants in BofA to bolster confidence in the struggling bank, which was dealing with losses related to subprime mortgages. He converted the warrants into common stock in 2017, making Berkshire the largest shareholder of BofA. The “Oracle of Omaha” later added another 300 million shares to his position in 2018 and 2019.

The recent BofA sell-off comes after Buffett has spent the past few years selling off many long-held investments in the banking industry, including JPMorgan, Goldman Sachs, Wells Fargo, and U.S. Bancorp. Berkshire still holds a 10.3% stake in Bank of America. If the selling continues and the ownership stake falls below the 10% reporting threshold, we won’t know how much Buffett has trimmed his position until the quarterly 13-F update.

**’We’re Very Cautious’**

So, does Buffett think that BofA and other banks have lost their competitive advantage? Possibly. Last year, shortly after the regional bank crisis that pushed Silicon Valley Bank and First Republic into the arms of rescuers, the Berkshire CEO hinted at emerging issues in the banking industry.

“We don’t know where the shareholders of the big banks, the regional banks, or any banks are going from here,” Mr. Buffett shared in 2023. “The American public is probably more confused about banking than ever before. And that has consequences. Nobody knows what the consequences are because each event starts creating a different dynamic.”

Mr. Buffett stated that the bank collapses during the 2008 global financial crisis and again in 2023 had eroded trust in the system, and everything was made worse by ineffective messaging from regulators and politicians. Meanwhile, digitization and fintech have made it easy to withdraw money en masse from banks during a crisis.

The collapse of Silicon Valley and Signature Bank early last year, two of the biggest bank failures ever, prompted special relief measures from regulators. Specifically, they guaranteed all deposits in the troubled banks and provided additional funding for other struggling banks.

The Oracle of Omaha emphasized, “You can’t be sure what’s happened to the stability of deposits. It changed after 2008 and again after this event. That changes everything. We’re very cautious in a situation like that about bank ownership.”

At that time, Mr. Buffett predicted that there would be more bank failures in the future but continued to invest in Bank of America, partly because he had personally negotiated the initial deal and admired CEO Brian Moynihan.

“But do I know how to predict what’s going to happen from here?” Mr. Buffett asked at the time of last year’s collapses. “The answer is I don’t know.”