As an investor, it is wise to be "Fearful when others are greedy and greedy when others are fearful," according to the Oracle of Omaha, Warren Buffett (Trades, Portfolio).
With this being the case, you would think that the CEO of Berkshire Hathaway would have been busy buying stocks over the past few weeks. According to SEC filings, though, this does not appear to be the case.
According to the limited amount of information that's been published regarding Berkshire Hathaway's (BRK.A, Financial) (BRK.B, Financial) $240 billion equity portfolio over the past few weeks, it looks as if Buffett has been a net seller, not a buyer of stocks. While only significant portfolio changes, such as buys or sells from a 10% owner of a stock, must be filed outside of quarterly filings, Berkshire Hathaway is big enough that it could easily deploy this much capital in an investment it was confident in.
Is Buffett running scared?
The first hint that the Oracle of Omaha may be mostly selling equities from his portfolio came on Friday, April 3.
According to a regulatory disclosure published on that date, Berkshire had sold 13 million shares of Delta Air Lines (DAL, Financial) and 2.3 million shares of Southwest Airlines (LUV, Financial).
A few days later, another regulatory disclosure revealed that Berkshire has been selling its holdings of Bank of New York Mellon (BK, Financial). The regulatory filing, which was published on April 9, revealed that the conglomerate had sold a total of 869,103 Bank of New York Mellon shares on April 7 and April 8.
These are interesting developments. The reason why Berkshire has had to reveal these position changes before the company publishes is Q1 13F, which is currently scheduled for the end of May, is because Berkshire owns more than 10% of Delta, Southwest and Bank of New York Mellon. Ownership of more than 10% mandates that Buffett's holding company immediately disclose any material changes to those positions.
The sales have taken all of these holdings below the 10% threshold, so Berkshire is no longer required to report its ownership changes in these positions. With that being the case, it's entirely possible that Buffett has continued selling since these initial regulatory filings were published.
Assuming Berkshire hasn't continued to sell, the group remains Delta's largest shareholder, with 9.2% of the company's shares outstanding after reducing its position by 18%. Berkshire pared back its Southwest holding by just 4% and still owns 51 million shares, or 9.9% of the airline. With regards to the Bank of New York Mellon, Berkshire Hathaway now has overall ownership of 88.1 million shares of the bank.
The big question is, do these changes mark a shift in Buffett's investment strategy, or were they just housekeeping moves?
A shift in Buffett's investment strategy
I should state that, at this point, I am purely speculating here. The contents henceforth are entirely my own thoughts on the matter, based on no real evidence whatsoever.
According to Buffett's past comments from his annual letters, annual meetings and interviews, there are two primary reasons why he likes to sell investments.
1) He's found something better
2) The investment thesis has changed
As Berkshire had over $120 billion of cash on its balance sheet at the end of 2019, it seems unlikely that Buffett would be selling these positions to raise capital. Even if Berkshire dumped all of its airline holdings, as well as the Bank of New York Mellon position, it would only raise $14.2 billion in cash based on year-end 2019 values (less now that share prices are down significantly).
Excluding any potential unexpected factors, it's much more likely that Buffett has decided the thesis has changed here. It's improbable that he ever imagined the whole airline sector would be grounded when evaluating airline stocks. That could have changed his perspective of the industry.
Another reason why Buffett could be selling is for housekeeping reasons. He's said several times in the past that he does not want to own more than 10% of any public business due to the additional reporting requirements this level of ownership brings. He might just want to bring Berkshire's ownership down a bit to hit this level.
Disclosure: The author owns shares in Berkshire Hathaway.
Read more here:
- Warren Buffett: How to Make Mistakes Well
- Howard Marks: Waiting for the Bottom is Folly
- 3 Tips From Charlie Munger for Investing in Tough Times
Not a Premium Member of GuruFocus? Sign up for a free 7-day trial here.
