Warren Buffett is famous for saying, “Our favorite holding period is forever.” However, when it comes to managing Berkshire Hathaway’s $153 billion stock portfolio, Buffett and his top money managers aren’t afraid to reverse on a dime and liquidate a stock, should the company cease to meet Buffett’s four investment criteria.*
In the fourth quarter of 2016 alone, Berkshire sold over $4 billion worth of stock, cashing out (or nearly cashing out) of household names like Deere (DE), Verizon (VZ), Kinder Morgan (KMI) and Walmart (WMT), among others.**
Since 2007, Buffett has sold 8 of Berkshire’s top 20 holdings, along with many more names in the interim. Here are some notable stock sales made by the world’s most famous long-term investor.
Walmart: Always low prices (except for their shares)
Berkshire first waded into Walmart in 2005—eventually building its position to 60.4 million shares. But from Q3 2015 to Q4 2016, Buffett sold nearly 98% of the position, leaving only meager gains as the stock appreciated 11% this year. At the Berkshire Annual Shareholders Meeting on May 7, 2017, vice chairman Charlie Munger said, “We blew Walmart … It was a total cinch. We were smart enough to figure that.”
Intel no longer inside
Buffett has famously said, “Never invest in a business you cannot understand.” That’s one reason Berkshire famously avoided tech names for decades. But that changed in 2011 with the purchase of IBM (IBM) and Intel (INTC)—paving the way for its recent high-profile Apple (AAPL) accumulation.
Whether or not trillion-transistor circuit boards proved too inscrutable for the scrupulous Buffett, Berkshire nevertheless shed its Intel shares less than a year later, missing out on a 50% appreciation since then.
IBM was, until recently, Berkshire’s fourth largest position. But the day before Berkshire’s 2017 Shareholder Meeting, Buffett announced he had sold one third of Berkshire’s position, or 27 million shares. To date, IBM has lost over 25% from its 2013 high, and Buffett’s announcement Friday precipitated a one-day drop of 2.5%.
Oil drum doldrums
While easier to understand, the oil business has had more downs than ups over the decade, suffering not one, but two plunges of more than 75%. Berkshire got caught in both of them vis a vis its substantial holdings of Conoco Philips (COP) and Exxon Mobil (XOM) (flipping the latter twice from 2009 to 2014). Apparently, Buffett no longer saw the “favorable long-term economic characteristics” of the oil and gas business.
Banking on bankers
Wells Fargo has been a Berkshire staple for decades. While the bank didn’t get a mention in Buffett’s last shareholder letter, it got considerable attention at Berkshire’s 2017 Shareholder Meeting. Buffett said Wells Fargo had made three significant mistakes, one of them critical. Nevertheless, Berkshire still holds nearly 473 million shares, making Wells Fargo its second-largest position.
Buffett has also bet big on two other bulge bracket banks. During the financial crisis, Berkshire invested $5 billion in Goldman Sachs (GS) in return for preferred stock yielding a fat 10% annual dividend as well as warrants to convert the shares to common stock. (This illustrates why it’s difficult to invest like Buffett, as he is able to obtain terms that an ordinary investor rarely would.) Since exercising those warrants in 2013 and receiving 13 million common shares in a cashless transaction, Berkshire has sold about 2 million of them.
Bank of America (BAC) is a case of getting it wrong before getting it right. Buffett bought 9.1 million shares in mid-2007 at close to $50 per share. As the financial crisis unraveled, Buffett sold them all from late 2008 through the end of 2010, as the price held below $15. The next year, Buffett turned around and plowed another $5 billion into Bank of America—this time getting preferred stock yielding a 6% annual dividend. As with Goldman Sachs, Berkshire also got warrants to convert the preferred shares to common, which Buffett has said he would do under the right conditions.
Just keep it
No stranger to apparel and active wear, Buffett has made more than a pretty penny hawking haute couture hoodies and the like. Nevertheless, Buffett might be kicking himself after selling Berkshire’s 32 million-share stake in Nike (NKE) from 2007 to 2010. Had he held on, he’d be up nearly 325%, kicking back with a $3.5 billion profit.
Charity begins at home, not Home Depot (HD). That’s why Buffett dumped his cache of home improvement stocks as the housing crisis made mince meat of Lowe’s (LOW) and Home Depot earnings. While the Oracle can’t be faulted for dumping two losing bets, a game of “woulda shoulda” shows he would have made a whopping 500% on Home Depot, and over 250% on Lowe’s.
Buffett once said, “If you aren’t thinking about owning a stock for ten years, don’t even think about owning it for ten minutes.” It’s clear this maxim not only informs Buffett’s decisions on new stocks to buy, but also his willingness to examine the viability of existing positions.
* Berkshire maintains very small positions in both Walmart and Verizon.
** You will notice that our major equity holdings are relatively few. We select such investments on a long-term basis, weighing the same factors as would be involved in the purchase of 100% of an operating business: (1) favorable long-term economic characteristics; (2) competent and honest management; (3) purchase price attractive when measured against the yardstick of value to a private owner; and (4) an industry with which we are familiar and whose long-term business characteristics we feel competent to judge. It is difficult to find investments meeting such a test, and that is one reason for our concentration of holdings. We simply can’t find one hundred different securities that conform to our investment requirements. However, we feel quite comfortable concentrating our holdings in the much smaller number that we do identify as attractive.”
– Warren Buffett, 1976 Letter to Shareholders.