Buffett reduced stakes in Berkshire Hathaway’s stock for the second time and divested US$130 million of its HP holdings | Analysts said it may not be over yet

Berkshire Hathaway’s stock faces a huge fall for the second time as stock god divests 130 million dollars of its HP holding

Berkshire Hathaway, overseen by the renowned “Stock God” Warren Buffett, recently divested approximately $130 million worth of HP stocks between the 20th and 22nd of the month, marking its second recent reduction in holdings.

Analysts speculate that Buffett may continue to decrease Hathaway’s stock.

As per Barron’s, Berkshire Hathaway disclosed through documents filed with the Securities and Exchange Commission (SEC) that it sold 4.8 million Hathaway HP shares during this period at an average price of roughly $27 per share, aligning with Barron’s earlier estimates.

This selling price represents a loss compared to the buying price, which was over $30 per share. The previous reduction in Hathaway’s stock holdings occurred from September 11th to 13th, involving the sale of 5.5 million Hathaway shares valued at about $160 million.

Following these two rounds of stock sales, Hathaway retains approximately 110 million shares in HP, valued at $3 billion, still holding a notable 11.2% stake in HP. On the 22nd, HP’s stock price closed at $26.77 per share, down 0.1%.

Berkshire initially acquired HP stocks in early 2022, with the first reduction in holdings happening in September. This recent divestment may signify Buffett’s intention to continue reducing Hathaway’s stock shares.

Despite Buffett’s preference for low-profile portfolio adjustments, Hathaway’s substantial HP holdings—accounting for over 10% of HP’s outstanding shares—require prompt disclosure to the SEC when shares are sold.

If Hathaway continues to divest its HP holdings, it will continue reporting to the SEC unless its holdings are reduced to 99 million shares.

When Hathaway first reduced its HP holdings, analysts noted HP’s poor financial performance and lowered expectations for 2023 earnings per share and free cash flow due to economic challenges and inventory issues.

It appears that their suspicions about Hathaway continuing to divest HP Hatway’s stock holdings have proven accurate.

Barron’s Weekly observes that Hathaway’s stock has been more active in recent years regarding buying and selling stocks compared to its past practices.

Despite Buffett’s well-known admiration for BYD, which has been an “ideal investment target” in his eyes, Hathaway has notably reduced its holdings in BYD multiple times in less than a year.

According to Hong Kong Stock Exchange documents, Hathaway sold 2.53 million BYD H shares on June 19 at HK$266.85 per share, reducing its stake from 9.21% to 8.98%. The transaction’s value was approximately HK$675.8 million.

This marked the 12th time in a year that Hathaway disclosed reductions in its BYD H shares holdings, with over 126 million shares, nearly 60% of its holdings, reduced since August 2022.

Many have wondered why Buffett, a longtime advocate of Wang Chuanfu and BYD, has been consistently reducing Hathaway’s stock holdings in BYD recently.

Notably, during an interview with CNBC on April 12 of this year, Buffett expressed his surprise at BYD’s value growth since 2008 and praised it as a great company.

Buffett’s investment decisions are closely watched, often serving as a barometer for others. The question of whether to follow his lead and buy stocks he has reduced holdings in remains a hot topic.

Some worry about BYD’s future direction due to his reductions, while others see significant long-term potential in the new energy industry, leading to speculation about whether Buffett might regret these moves.

Looking back at Buffett’s major reduction decisions in history, it becomes evident that analyzing the outcomes of companies he has reduced or liquidated can provide valuable insights.

This allows us to reflect on past actions and discern potential patterns or rules in Buffett’s investment strategies.

Some companies that have been reduced or liquidated by Buffett:

1. Wells Fargo was once Buffett’s favorite, Has been held since as early as 1989,Buffett was its largest shareholder, The value of the stock holdings once reached US$32 billion.2016,Wells Fargo scandal breaks out, Buffett begins the road to reducing holdings .First quarter of 2022, Buffett Completely Clears Out Wells Fargo Bank, Ended long-term investment of 33 years.

Reason: Buffett has publicly criticized Wells Fargo’s management for failing to stop employees from creating fake accounts after they became aware of them, lead to scandal

Wells Fargo gives employees too much autonomy, by “cross-sell” Multiple products to achieve sales targets.

In an interview in February 2020, Buffett said,Wells Fargo has one”stupid”Incentive system,And was slow to correct the problem.

Follow-up: After being reduced by Buffett, The bank bottomed out, Soared over 60%,Outperformed the performance of most Berkshire shares over the same period.

2. Procter & Gamble (World daily chemical industry giant) Buffett invested $5.7 billion in Gillette in 2005,Become a major shareholder of P&G. Year 2008, Buffett holds more than 100 million shares of Procter & Gamble.

Thereafter, Due to the company’s poor performance under former CEO McDonald, Buffett has reduced his holdings twice. Buffett has held a position in Procter & Gamble for almost ten years., During Buffett’s holding period, The stock price rose by almost 50%.

Follow-up: After Buffett reduced his holdings of stocks,Procter & Gamble ‘s stock price begins to rise rapidly,Share price nearly doubled from 2015 to 2022.

3. Walmart (One of the world’s largest retail companies): 2005,At that time, Wal-Mart, a retail giant, was at its peak, Buffett starts investing in Walmart. The rise of e-commerce platforms, Have a big impact on Walmart’s business model. Buffett began gradually reducing his holdings of Walmart stock in 2015,As of mid-2016, it held $3 billion in shares, But in the fourth quarter of 2016, 90% of its holdings were sold, A complete liquidation was completed at the end of 2018.

Follow-up: After Buffett reduced his holdings of Walmart in 2016,Walmart stock surges higher after brief dip, By the highest price in 2021, it is already twice the price at which Buffett reduced his holdings. In other words, Buffett missed the opportunity to double later.

4. IBM(A technology company with over a century of history): IBM is one of the few stocks that Buffett is wrong about. Berkshire Hathaway announced its investment in IBM in 2011,and became the company’s largest shareholder. May 2017, Buffett said, Berkshire has sold a third of its IBM holdings in the first and second quarters. 2018, Berkshire finally liquidates its position in IBM, Cut off the meat and get out.

Reason: In an interview with CNBC in May 2017, Buffett said: “I was wrong…Although IBM is a powerful company, But they also face equally strong competitors. I value IBM differently now than when I first started buying the stock six years ago. Based on my reassessment, This stock is facing downward pressure. “Buffett recounted what Bill said two years ago. Gates’ warning to himself, There is a sentence that is impressive, “IBM looks less and less like a technology company, This is sad.”

Follow-up:  IBM’s stock price remains almost unchanged after Buffett liquidates his position.2021,The company’s net profit was US$5.7 billion, Only one-third of what it was 10 years ago.

For major shareholders like Buffett, Reducing holdings does not mean that you are not optimistic about the company, In addition to predicting the future of the industry, The need for shareholders to reallocate their own assets is also an important consideration in decision-making.