His long-term investment philosophy is based on an unshakable faith in the companies he invests in. But that’s not always the case.
Warren Buffett is known as the king of long-term investing, with a philosophy that has led him to hold shares of some of the world’s largest companies for decades. His motto, "the preferred holding period is forever," reflects an approach that prioritizes long-term stability and confidence in companies. However, when Buffett decides to sell a significant stake, the investing world takes note, because it can be a warning sign, not just about the company in question, but about the entire industry.
Buffett is not known for selling his stocks lightly. As he explained at Berkshire Hathaway’s annual meeting in 2009, he and his team are reluctant to sell large holdings unless certain conditions are met. "If we made the right decision initially, we like to hold on for a long period of time. We’ve owned some stocks for decades," Buffett said. However, when the company loses its competitive edge or if management no longer inspires confidence, then it is time to sell.
A prime example of this philosophy is his investment in newspapers. In the 1970s, Buffett invested in local newspapers like the Omaha World-Herald and the Buffalo News, believing that they were businesses with unassailable competitive advantages. But by the turn of the millennium, the rapid transition to digital platforms and declining advertising revenues had changed the landscape of the industry. Buffett realized that the era of print newspapers was over and sold most of his holdings in the sector in early 2020.
One of the last notable examples of Buffett’s divestment involves banks. In particular, his recent sale of about $9 billion in Bank of America (BofA) shares, starting in mid-July 2023, has caused a stir. This move surprised many, especially since Buffett has always had a special relationship with BofA, having initially invested $5 billion in 2011 to shore up confidence in the institution during the subprime mortgage crisis.
Buffett subsequently increased his exposure to BofA, converting the warrants into common stock in 2017 and becoming the bank’s largest shareholder. His confidence in the institution seemed solid, so much so that he added another 300 million shares between 2018 and 2019. However, in recent years, he has begun to reduce his holdings not only in BofA but also in other large banks such as JPMorgan, Goldman Sachs, Wells Fargo, and U.S. Bancorp.
The question that naturally arises is: why is Buffett selling? Does he think the banking industry has lost its competitive edge? In a 2023 discussion, Buffett suggested that there may be underlying problems in the banking industry. The uncertainty generated by the 2008 and 2023 banking crises has challenged shareholder and public confidence, and Buffett has expressed concerns about how digitalization and new fintech technologies have made deposits less "stable."
The 2023 banking crisis, which saw the collapse of regional banks such as Silicon Valley Bank and Signature Bank, has exacerbated Buffett’s fears. These failures, among the largest in American history, have prompted regulators to step in with extraordinary measures to protect deposits and stabilize the system. However, Buffett believes that these crises have fundamentally changed the nature of the banking industry.
In his speech, Buffett stressed that it is impossible to know for sure what the future holds for the banking system, especially given the changes that have occurred since 2008. "We don’t know where the shareholders of the big banks, the regional banks, or any banks are going," he said in 2023. This sense of uncertainty, combined with the rapid advancement of digital technologies that make withdrawals easier and faster, may be a major reason behind Buffett’s decision to be "very cautious" about bank ownership.
Despite reducing his holdings, Buffett has maintained a significant stake in Bank of America, remaining one of its largest shareholders. Part of that decision may be tied to the personal relationship he has built with BofA CEO Brian Moynihan, whom he has always expressed admiration for. However, Buffett also admitted that he doesn’t have a clear forecast of what will happen in the future. "But do I know how to project what’s going to happen from here? The answer is no," he said, expressing a degree of uncertainty rare for an investor of his caliber.
When Warren Buffett decides to sell, it’s never a decision he takes lightly. His long-term investment philosophy is based on an unshakable faith in the companies he invests in. However, when he senses that a company’s competitive advantage is eroding or that uncertainty in the industry is growing, he doesn’t hesitate to reduce or completely liquidate his holdings.
Buffett’s recent disengagement from the banking sector could be an important signal to investors. The combination of bank failures, technological change, and global economic uncertainty could indicate that the banking sector, once seen as a stable pillar of the economy, is going through a period of profound and potentially destabilizing change. And when the Oracle of Omaha is cautious, the investing world should pay attention.
Original article published on Money.it Italy 2024-10-14 11:19:00. Original title: Ecco quando è il momento giusto per vendere un’azione secondo Warren Buffett
