On the eve of the Federal Reserve's expected interest rate cut in September, the "stock god" Buffett made another big move: Berkshire Hathaway significantly reduced its holdings in Bank of America for 12 consecutive days, cashing out $3.8 billion from it.
Although Buffett has always claimed that he will not short the United States, looking back at the past year and a half, Berkshire Hathaway has sold US stocks net for six consecutive months. Buffett's portfolio adjustment also indicates that in his eyes, the current valuation of US stocks may be too high.
Buffett reduces holdings of US stocks for 12 consecutive days
On Thursday of this week, Berkshire Hathaway released its latest documents showing that Buffett's Berkshire Hathaway has sold off Bank of America stocks for the 12th consecutive day.
Since mid July, Berkshire Hathaway has been continuously reducing its holdings in Bank of America, with Bank of America stocks in its portfolio decreasing by 8.8% and a total reduction of $3.8 billion.
According to the documents submitted by Berkshire Hathaway to the US Securities and Exchange Commission, between July 30th and August 1st, Berkshire Hathaway cashed out $779 million by selling 19.22 million shares of Bank of America stock.
After this round of reduction, Berkshire still holds over 942 million shares of Bank of America stock, valued at $37.2 billion based on Thursday's closing price.
Buffett's investment in Bank of America began in 2011, when the trading price of Bank of America was only around $5. Now, Bank of America's stock price has fluctuated and risen to $39.5.
For a long time, Berkshire Hathaway has been the largest shareholder of Bank of America. Buffett's investment in Bank of America has always been seen as his recognition of the leadership abilities of Bank of America CEO Brian Moynihan. Buffett has previously praised Moynihan in public multiple times.
What is Buffett's plan?
Overall, the recent consecutive reduction in holdings is Buffett's largest reduction in holdings of Bank of America in the past decade. Why has Buffett started to significantly reduce his holdings recently after holding for nearly 13 years?
So far, Buffett himself has remained silent about his reasons and intentions for reducing his holdings. However, external speculation suggests that the overvaluation of Bank of America may be one of the reasons.
In the months leading up to the massive sell-off, Bank of America's stock price had been rising, with a 31% increase since the beginning of this year. In mid July, Bank of America's stock price rose to a new intraday high of $44.44 in nearly two and a half years - which also means that Bank of America's valuation is not as cheap as it used to be.
For most of the past 15 years, Bank of America's stock price has been below its book value. Nowadays, its stock price has a premium of 25% to 30% relative to book value, which may be an attractive profit taking point.
In addition, Buffett may also be preparing in advance for the Federal Reserve's monetary policy shift.
Bank of America is very sensitive to changes in interest rate cycles, and may even be more sensitive than other banking peers. In March 2022, when the Federal Reserve's most aggressive rate hike cycle in 40 years began, Bank of America gained huge profits from it. At the recent press conference after the Federal Reserve's July interest rate decision, Federal Reserve Chairman Powell almost explicitly stated that he will cut interest rates in September, which means that the net interest income of Bank of America may be more damaged than its peers.
In fact, although Buffett has always publicly claimed that he will not short the United States, his position adjustment actions are not always "tough long". Whenever the stock valuation is too high, he can always flexibly reduce his position.
If we look back at his recent portfolio adjustments, we would be surprised to find that Buffett has been a net seller of stocks for six consecutive quarters from the fourth quarter of 2022 to the end of the first quarter of 2024. During these 18 months, Buffett sold a total of $56.09 billion worth of stocks.
This sustained selling activity may send a very clear warning to Wall Street that US stock prices have become too high.