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Welcome to Episode #378 of the Value Investor Podcast.
Every week, Tracey Ryniec, the editor of Zacks Value Investor portfolio, shares some of her top value investing tips and stock picks.
There was big news in the last week for value investors. Berkshire Hathaway (BRK.B - Free Report) reported its second quarter results and revealed that it had sold a big chunk of its Apple (AAPL - Free Report) shares during the quarter.
At the annual meeting, Warren Buffett had already disclosed that he sold $20 billion worth in the first quarter.
But, combined with the newly disclosed second quarter sales, Berkshire Hathaway has now sold 50% of its massive Apple stock position. This has shocked long-time Berkshire fans.
The money has apparently rotated into cash, as Berkshire’s cash hoard now has $277 billion, up from about $180 billion in the first quarter.
Additionally, SEC filings have indicated that Berkshire has sold over $3.8 billion in Bank of America (BAC - Free Report) stock during the third quarter. Buffett has not sold any Bank of America stock in years.
When Do You Sell? Never.
Buffett’s folksy investment advice has included the phrase, “the best time to sell is never.” Some have meant this to mean you should never, ever sell a stock.
Yet over the years, he has, of course, sold some of his equity positions. And then some. When the pandemic hit, Buffett ordered the lieutenants, who owned several airline stocks, to sell out of them completely, even though it meant taking a loss.
He also sold out of a big IBM position, also for a loss. And recently, Berkshire Hathaway exited its position in RH.
What Are Possible Lessons from Buffett’s Sales?
1. Rebalancing
Buffett has called Apple one of the four pillars of the Berkshire Hathaway business. Bought in 2016, he has sold some shares over the years when the position became too large for the portfolio. This “rebalancing” is typical in most portfolios, especially when you have such a big winner like Apple.
2. Investing to Make Money
Apple has been one of Buffett’s greatest trades. I’m sure you have big trades like this as well. But that doesn’t mean you shouldn’t cash in on some of your profits. Remember, investors don’t have to sell out of their entire position. It is okay to take some profits off the table but leave shares to ride.
3. Has the Stock Gotten too Expensive?
Valuations could be a problem. Apple was cheap when Buffett bought it in 2016, trading under 10x forward earnings. Now, it’s trading at 32x with single digit earnings growth expected in fiscal 2024. Does one of your stocks now trade at sky-high valuations? It might be time to re-evaluate.
4. Change at the Company
Things change over the course of decades. Businesses and management changes. Is the company still in the business you want it to be in? Netflix used to send out DVDs in red envelopes in the mail. Now, it is exclusively a streaming service.
5. Know Your Investing Goals
Warren Buffett is managing the Berkshire Hathaway portfolio for the Berkshire shareholders. For reasons we do not yet know, he believes he is better off being in cash instead of holding onto larger positions in Apple and Bank of America. Your investing goals will be different. It is okay to sell a stock when you reach your goal.
What Else Should You Know About Buffett’s 2024 Stock Sales?
Tune into this week’s podcast to find out.
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Lessons from Buffett's 2024 Stock Sales
Welcome to Episode #378 of the Value Investor Podcast.
Every week, Tracey Ryniec, the editor of Zacks Value Investor portfolio, shares some of her top value investing tips and stock picks.
There was big news in the last week for value investors. Berkshire Hathaway (BRK.B - Free Report) reported its second quarter results and revealed that it had sold a big chunk of its Apple (AAPL - Free Report) shares during the quarter.
At the annual meeting, Warren Buffett had already disclosed that he sold $20 billion worth in the first quarter.
But, combined with the newly disclosed second quarter sales, Berkshire Hathaway has now sold 50% of its massive Apple stock position. This has shocked long-time Berkshire fans.
The money has apparently rotated into cash, as Berkshire’s cash hoard now has $277 billion, up from about $180 billion in the first quarter.
Additionally, SEC filings have indicated that Berkshire has sold over $3.8 billion in Bank of America (BAC - Free Report) stock during the third quarter. Buffett has not sold any Bank of America stock in years.
When Do You Sell? Never.
Buffett’s folksy investment advice has included the phrase, “the best time to sell is never.” Some have meant this to mean you should never, ever sell a stock.
Yet over the years, he has, of course, sold some of his equity positions. And then some. When the pandemic hit, Buffett ordered the lieutenants, who owned several airline stocks, to sell out of them completely, even though it meant taking a loss.
He also sold out of a big IBM position, also for a loss. And recently, Berkshire Hathaway exited its position in RH.
What Are Possible Lessons from Buffett’s Sales?
1. Rebalancing
Buffett has called Apple one of the four pillars of the Berkshire Hathaway business. Bought in 2016, he has sold some shares over the years when the position became too large for the portfolio. This “rebalancing” is typical in most portfolios, especially when you have such a big winner like Apple.
2. Investing to Make Money
Apple has been one of Buffett’s greatest trades. I’m sure you have big trades like this as well. But that doesn’t mean you shouldn’t cash in on some of your profits. Remember, investors don’t have to sell out of their entire position. It is okay to take some profits off the table but leave shares to ride.
3. Has the Stock Gotten too Expensive?
Valuations could be a problem. Apple was cheap when Buffett bought it in 2016, trading under 10x forward earnings. Now, it’s trading at 32x with single digit earnings growth expected in fiscal 2024. Does one of your stocks now trade at sky-high valuations? It might be time to re-evaluate.
4. Change at the Company
Things change over the course of decades. Businesses and management changes. Is the company still in the business you want it to be in? Netflix used to send out DVDs in red envelopes in the mail. Now, it is exclusively a streaming service.
5. Know Your Investing Goals
Warren Buffett is managing the Berkshire Hathaway portfolio for the Berkshire shareholders. For reasons we do not yet know, he believes he is better off being in cash instead of holding onto larger positions in Apple and Bank of America. Your investing goals will be different. It is okay to sell a stock when you reach your goal.
What Else Should You Know About Buffett’s 2024 Stock Sales?
Tune into this week’s podcast to find out.