As the most famous investor of the past century, Warren Buffett’s moves in the stock market are carefully watched by professional and retail investors alike. Recently, Buffett’s Berkshire Hathaway investment company filed its 13F for Q4. This form reported considerable sales of stocks held by Berkshire, including some that are highly unusual for Buffett’s buy-and-hold investment strategy.
The Oracle of Omaha’s Q4 selling spree has left many investors wondering if Buffett sees troubling times ahead for the American economy.
What Stocks Has Buffett Sold?
In total, Berkshire Hathaway sold shares in eight companies during Q4. These companies were:
- Activision Blizzard
- US Bancorp
- Ally Financial
- Bank of New York Mellon
- Taiwan Semiconductor
One of the biggest surprises from Q4’s 13F filing was the sale of shares in Chevron. Buffett has been consistently buying up shares in the oil major since 2021 to take advantage of high oil prices. It should be noted, however, that the Chevron sale was quite small in response to Berkshire’s total holdings. The firm sold off 2.3 million shares, leaving it with over 160 million shares still in its portfolio.
Another major takeaway from Berkshire’s Q4 activity is a continuing transition away from bank stocks. Last year, Buffett fully divested Berkshire from its longstanding position in Wells Fargo. Buffett had sold both US Bancorp and Bank of New York Mellon in Q3 and continued to pare his holdings in Q4.
While Berkshire still holds a fairly large position in Bank of New York Mellon, the company seems to be on track to sell all of its US Bancorp shares in the near future.
A final rather strange sale made in Q4 was that of Taiwan Semiconductor. Buffett initially bought the stock in Q3 2022, taking a $4.1 billion position in the chip behemoth. The very next quarter, however, Berkshire sold 86 percent of that stake. This is highly unusual for both Buffett and Berkshire Hathaway, both of which historically deal in long-term investments.
During the quarter, Berkshire Hathaway also added to its positions in three companies. These were Apple, Paramount Global and Louisiana-Pacific Corporation. It’s worth noting that all three of these stocks were already represented in Berkshire’s portfolio. Buying activity was also tiny in comparison to sales. Berkshire acquired $158 million in new shares, compared to nearly $9 billion in stocks sold.
Is Buffett Banking on a Recession?
Over the past several months, it has become increasingly evident that a recession could occur in 2023. While some investors are looking at Buffett’s selling activity as an effort to get out in front of macroeconomic forces, this view ignores the Oracle of Omaha’s entire approach to investing. Buffett has long cautioned that macroeconomic forces are unpredictable and that investors are better off focusing on the long-term values of individual businesses.
Taking this view into account, it’s more likely that Buffett’s larger sales were made because he either perceived the fundamentals of the companies to have changed or believed he could use the capital more effectively elsewhere. Both of these situations would be much more in line with Buffett’s past statements on when he chooses to sell stocks.
A possible exception could be Buffett’s highly unusual entry and exit on Taiwan Semiconductors. The value investing legend rarely buys either tech stocks or foreign companies, making the chipmaker an unusual holding for his portfolio.
The rapid exit from such a large position was equally unusual, suggesting that Buffett drastically changed his evaluation of the business. One possible explanation for this could be a decision that the geopolitical risks posed by China are too high for Berkshire to invest in Taiwan. With China currently acting more aggressively toward the island nation, Buffett may have decided to invest more safely in domestic companies.
The Taiwan Semiconductor situation also highlights Buffett’s perennial willingness to admit mistakes. Rather than hold onto poor positions, the Oracle of Omaha has typically been willing to close them quickly and move on to greener pastures.
Buffett may also be eyeing larger opportunities in the near future. For example, Berkshire received approval last year to buy up to 50 percent of Occidental Petroleum. Buffett has clearly been bullish on oil over the last year, and further acquisitions of Occidental shares could come in 2023. To some extent, the sales made in Q4 could be intended to rebalance Berkshire’s portfolio ahead of other planned investments.
Should Buffett’s Sales Alarm Investors?
While Warren Buffett has made some unusual moves recently, investors likely have no reason to panic. The Oracle of Omaha’s value investing strategy has proven itself over more than 60 years, and it seems that Buffett is simply continuing to do what works. Although the US and global economies could be in for a rough year in 2023, the current sales at Berkshire Hathaway are likely just business as usual.
In fact, value investors like Buffett often find better opportunities in bear markets than they do in bull markets. Because this style of investing focuses more on the present value of a business than its future growth potential, value investing is a natural fit for periods when stocks sell off. As such, investors who follow Buffett’s strategy may see good opportunities this year.
Investors who hold Berkshire Hathaway stock also seem to have little to fear. The company’s earnings handily beat consensus estimates throughout 2022, despite the challenges posed by inflation, higher interest rates and ongoing supply shortages. As a company with an enormous cash reserve and highly diversified business holdings, Berkshire is likely well-positioned to ride out 2023 with minimal difficulties.
So, while Buffett and Berkshire may be selling a bit more aggressively than usual, these moves are likely not necessarily red flags for investors. Ups and downs in the market notwithstanding, Buffett appears to be continuing his long streak of value investing much as he always has.
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