Warren Buffett (Trades, Portfolio) has said on multiple occasions that when he buys a stock, he intends to hold it forever.
He may enter into positions with the ambition to hold on to them indefinitely, but that does not always work out. We know he has divested positions on multiple occasions, usually when the business changes direction, or when he believes the initial investment thesis is broken.
And there are other reasons why the Oracle of Omaha has sold stocks in the past. For example, between the third quarter of 2018 and the fourth quarter of 2020, Buffett's Berkshire Hathway (BRK.A, Financial) (BRK.B, Financial) sold around 123 million shares in Apple (AAPL, Financial), worth around $18.5 billion at current prices. The Oracle has not yet defined why he decided to sell these holdings, although he has admitted that it was "probably a mistake."
Over the past year, Berkshire has overall been a net seller of stocks. It seems possible that Buffett has become worried that the market is overvalued at current levels, and he is taking some money off the table. It certainly seems that way looking at Berkshire's transaction data over the past couple of quarters.
Berkshire keeps selling
According to the group's latest 10-Q, Berkshire sold $2 billion more in stocks than it bought for the third quarter, which ended in September.
This was the fourth straight quarter where Berkshire's selling has exceeded buying. Over the past nine months, the value of sales has exceeded the value of purchases to the tune of $7 billion.
One of the reasons Buffett has given for selling stocks in the past is to free up cash for more deals. I think we can rule this out as a driver of the recent divestments, though. Berkshire's cash pile stood at a record $149 billion at the end of the third quarter. Based on this, Buffett would only need to sell equities if he is planning a $100 billion-plus deal.
The conglomerate can't get rid of all of its cash, since it needs it as collateral in order to keep its unique edge in the insurance business. However, Buffett has previously said he wants to keep $20 billion to $30 billion of cash available in Berkshire to cover potential liabilities. So if he was planning to spend more than $119 billion on an acquisition, he might need to raise cash. I think the chances of this are pretty small.
Another explanation could be that these sales are linked to the portfolios of Todd Combs Ted Weschler. These two fund managers trade more frequently than Buffett himself. They are likely to have been behind several smaller acquisitions and sales in the conglomerate's portfolio over the past year. Berkshire's 10-Q would make no distinction between who bought and sold securities in the group's portfolio.
Short-term trades
I have also noticed an increase in the number of short-term trades in Berkshire's portfolio. This is not just related to more minor positions. Buffett has said he has oversight on single positions worth $1 billion on more. This would include Chevron (CVX, Financial), a $5 billion position for Berkshire at the end of 2020.
However, by the end of the second quarter of 2021, when the stock had increased in value by around 50% from the acquisition price, it had been reduced by half. That would account for $2.5 billion of sales to date. If Buffett has continued selling, this would account for the $2 billion of divestments in the third quarter, though we will need to wait for Berkshire's 13F before we know what the conglomerate sold during the quarter.
Merck (MRK, Financial) was another $1 billion-plus position that has lasted just over a year but was already on the way out in the second quarter. The same goes for AbbVie (ABBV, Financial).
These figures show that Buffett has been selling stock recently, although I do not want to draw any concrete conclusions from these actions until the Oracle provides clarification himself. It would be reckless to jump to any conclusions.
