Even the great Warren Buffett (Trades, Portfolio) has suffered losses during the tech sector sell-off that has gripped markets in 2022. According to Berkshire Hathaway's (BRK.B, Financial) (BRK.A, Financial) latest 13F report, the conglomerate owned a number of technology stocks at the end of the first quarter of 2022, and some of them have declined in value by as much as 40%.
Then there's Paramount Global (PARA, Financial). This stock is off by 35% over the past couple of months. DaVita Healthcare Partners (DVA, Financial) is off 31%, Amazon (AMZN, Financial) is off 31% and StoneCo (STNE, Financial) has slumped by around 28%.
Has Buffett made a mistake with some of these tech stocks? Is it possible that Berkshire will reverse course and sell some of these names? Before I continue, I should note that I have no insider knowledge whatsoever of Buffett's trades, thinking or plans for the future. This is all purely my own personal speculation. Moreover, some of these positions were initiated by Berkshire's portfolio managers rather than the Oracle of Omaha himself.
Even the best investors lose money
Sometimes, even the best investors have to take a loss on a position because the market does not move in the direction they might like if the company fails to capitalize on an opportunity. There are plenty of different reasons why an investment might not work out, and any investor who tells you they never lose money on a stock is lying.
Buffett has owned over 2,000 stocks throughout his career, and that number is continually growing (this figure also includes the companies wholly owned by Berkshire). Most of these companies are not in the portfolio today because Buffet has either sold out of them or Berkshire has acquired them as private businesses.
Buffett has previously said that there are only two reasons why he would sell a stock: to raise money to buy something else or because the situation has changed. This suggests that he has owned and subsequently sold nearly 2000 equities because the situation has changed. That's a lot for a man who has said that his favorite holding period is forever, but the thing is, the situation is always changing.
The changing environment
As investors, we have to adapt and change with the situation. We can't sit around and hope the world moves in our favor. The investment world just does not work like that. We have to adapt and change to different market environments, which requires flexibility and humanity. We need to acknowledge we've made a mistake when we have and move on if it is sensible to do so.
I would not be surprised if we see some changes to these tech positions in Berkshire's portfolio over the next couple of quarters. The situation has changed for tech stocks, especially the ones that are still in their growth stages. As the investment environment has changed, Buffett and his portfolio managers may decide that the outlook for some of these companies has also changed as the funding environment becomes tougher or demand for goods and services dries up.
Buffett has got to where he is today partly because he is good at picking stocks, but also partly because he is good at knowing when he is wrong. He sells losers and sticks with winners. He may buy equities to hold them forever, but he is also sensible enough to know that theory and the real world are often very different environments. In a changing environment, it can be sensible to reevaluate company prospects rather than just hoping for the best.