Why Warren Buffett is Selling BILLIONS in Stock

The best way to learn about investing is to follow what great investors are doing in their own stock portfolios, and the number one investor you should be following is none other than the legend himself, Warren Buffett. Following Buffett's stock portfolio at Berkshire Hathaway gives you an inside look into what the greatest investment mind on the planet is thinking about. Maybe even more importantly, you can get a sense of how he is seeing the current investment environment.

As of late, Buffett has been a net seller of stocks, selling far more stocks than he is buying. So in this video, we're going to take a look at what stocks Buffett is selling, what stocks he's buying, and the quote-unquote economic consequences Buffett sees ahead for the economy. Make sure to stick around to the end of this video because, who knows, maybe you'll get your next great investment idea.

Now let's get into the video. The first stock Buffett is selling in his position is U.S Bancorp, ticker symbol USB. The stock has occurred market cap of 73 billion dollars and trades at a P/E ratio of roughly 10 times. U.S Bancorp is the parent company of the popular banking brand U.S Bank. U.S Bank is the fifth largest bank in the United States and operates primarily in the Midwest and western United States.

Buffett recently slashed his position in U.S Bancorp, selling over 71 million shares that reduced the size of the position in the Berkshire Hathaway stock portfolio by nearly 92 percent. It wouldn't surprise me if Buffett has continued to sell shares of the company and has now exited the position entirely. This is a dramatic shift in the direction of the Berkshire Hathaway stock portfolio, and not to get sentimental or anything, but this position was one of Buffett's oldest in the portfolio.

Buffett first started buying shares in U.S Bancorp back in the first quarter of 2006, eventually buying enough shares to make Berkshire the largest shareholder in the company. Berkshire's ownership stake in the stock hit 8.1 percent of the entire company at its peak. It was not too long ago that U.S Bancorp was one of Buffett's largest positions and was considered a core holding in the Berkshire portfolio.

As someone who has closely studied Buffett for years, it's surprising that he's selling a stock that he held on to for so long. The reason I say that has to do with the tax bill Berkshire is going to have to pay on its profits from this investment. Buffett has said previously that he has avoided selling large positions in the past because the tax bill would be enormous, and it was better to just hold on to the stock and keep collecting the dividend check every three months.

Here's what he means: let's say Berkshire buys five billion dollars worth of stock. Over time, the value of that stock increases to fifteen billion dollars. I mean, after all, Buffett is the greatest investor of all time, so that profit wouldn't be too surprising. The difference between what the stock is now worth and what Buffett bought it for is referred to as a capital gain. In this example, that amount would be ten billion dollars.

Here in the United States, long-term capital gains for individuals is lower than the normal tax rate. The long-term capital gains tax for individuals falls somewhere between zero to fifteen percent depending on the person's income. However, corporations like Berkshire are not as lucky; capital gains are taxed at the normal 21 percent federal corporate tax rate. This means on the hypothetical ten billion dollar gain, 2.1 billion dollars of that would be going to the federal government in the form of taxes.

For stocks such as Apple, where Berkshire's gain is over 100 billion dollars, Berkshire Hathaway would have to write a check of over 20 billion dollars to the federal government to cover that tax bill. You can see why Buffett would be hesitant to sell.

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Next up on our list of stocks Buffett is selling is Taiwan Semiconductor, better known by the name TSMC. TSMC has a market cap of 450 billion dollars and trades at a P/E ratio of 15 times. Buffett chopped on this position significantly, selling nearly 52 million shares of the company. This reduced Berkshire's stake in the company by 86 percent.

Buffett has said many times before that he doesn't quote unquote trim positions, meaning if he starts selling a significant amount of shares, the stock is probably on its way out of their portfolio entirely. I wouldn't be surprised if this is the case for TSMC. For those who may not be familiar, in the most simple terms, TSMC is a semiconductor manufacturer. Semiconductors are used in everything from smartphones to computers to cars and everything in between.

Here's how TSMC's business model works: a company like Nvidia will give designs for a semiconductor to TSMC. TSMC will then be responsible for manufacturing that semiconductor according to those specifications. This makes TSMC what is referred to as a contract manufacturer. It takes tens of billions of dollars to build the factories referred to as fabs that these semiconductors are manufactured in. This is why companies like Nvidia, Broadcom, and AMD will outsource manufacturing to a company like TSMC.

For those who follow Buffett, the sale of TSMC was a shocker considering Berkshire first bought shares just a few months prior. Buffett is known as the ultimate long-term investor. There are stocks in the Berkshire portfolio that have been there for 10, 20, even 30 years. Heck, Coca-Cola stock has been in the portfolio since 1988. Buffett has frequently talked about the power of long-term holding periods when it comes to buying stocks. This is why I caught everyone by surprise to see TSMC on the list of stocks Buffett was dumping.

Unfortunately for us, Buffett didn't provide any explanation for his reasoning behind selling the stock. This will likely be a big topic at the famous Berkshire Hathaway annual meeting this year, but until then, we're left to speculate as to why he did that. Another big topic at Berkshire Hathaway is the growing pile of cash the company is sitting on. Berkshire ended the year with over 140 billion dollars in cash, and that number continues to grow as Buffett is selling stocks.

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Next up on our list of stocks Buffett is selling is Bank of New York Mellon, ticker symbol BK. The NY Mellon has a market cap of nearly 41 billion dollars and trades at a P/E ratio of 10 times. Buffett reduced Berkshire's position in the company by nearly 60 percent, selling over 37 million shares. It wasn't too long ago when Buffett and Berkshire owned 10 percent of the entire company, but like the earlier names on the list, it looks like BNY Mellon is also on its way out of the Berkshire portfolio.

Buffett has been a big seller as of late of bank and financial services stocks, many of which he's held for years. In 2022, Buffett exited his stakes in JP Morgan, Goldman Sachs, PNC Financial Services, and large insurance company Travelers. He even sold out of his stake in Wells Fargo, a stock that he has held all the way back since 1989.

While Buffett frequently cautions his followers to not try to predict what's going to happen in the economy, many people are speculating that Buffett is selling bank stocks because he sees the economy worsening in future years. At least on the surface, this makes sense given the business model of a bank. In the most simple terms, banks are in the business of loaning money. A bank will collect deposits from customers and then lend that money out to individuals and businesses. They may pay customers a one percent interest rate on the deposits at the bank and then turn around and charge a business seven percent on their loan.

The bank's profits would be the difference, also known as the spread, of what the bank pays for the deposits and ultimately what they're able to loan the money out at. There is one big assumption that goes into that profit calculation on the loan: that assumption is that the money will actually be paid back. When a bank is making tens or even hundreds of thousands of loans in any given year, it is only normal that some of these loans won't be paid back for whatever reason.

As I'm sure you can imagine, whether or not the loan is going to be paid back is highly dependent on the state of the economy. When the economy is booming and jobs are plentiful, more people and companies are going to be able to pay back the loan. However, the opposite is also true. When the economy is bad, more companies are failing, and fewer jobs are available.

The last couple of years, the economy has been incredibly strong. However, things may be changing. Many economists are predicting the U.S. and the world will enter a recession soon. While Buffett is quick to dismiss economic predictions, he did have an interesting comment in his most recent annual letter. Buffett was discussing the U.S. government having a budget deficit and the subsequent impact on the economy and inflation when he left an ominous warning: huge and entrenched fiscal deficits have consequences.

This could be a subtle way of Buffett warning that there could be problems ahead for the U.S. economy. His sales of U.S. bank stocks surely suggest that, at least at face value. The next notable stock that was sold in the Berkshire portfolio is Chevron, ticker symbol CVX. Chevron has a market cap of nearly 310 billion dollars and trades at a P/E ratio of 10 times. Buffett sold nearly 2.4 million shares of the company.

The reason that this is notable is because Chevron is the third largest position in the Berkshire stock portfolio; only Apple and Bank of America are larger. Additionally, Berkshire is also the single largest shareholder of Chevron stock, owning nearly nine percent of the company. Chevron is in the oil and gas industry. The company has the distinction of being a so-called oil supermajor. This means they are involved in nearly every aspect of the oil business, from pumping it out of the ground to selling it to end consumers at the gas station.

For most investors, selling a small portion of one of the largest positions in their portfolio wouldn't be newsworthy. However, this isn't any normal investor. This is Warren Buffett, who has made it clear many times that he doesn't quote unquote trim positions. Given the time lag in these transactions being released to the public, it will be interesting to see if Buffett has continued to sell Chevron's stock.

Like bank stocks, oil stocks are also very susceptible to the economy. How much money oil companies make is directly tied to one thing: you guessed it, the price of oil. Oil is what is referred to as a commodity, meaning its price is determined pretty much entirely by the laws of supply and demand. Let me explain what I mean. This line here represents the supply of oil. Think of this as how much oil is currently getting pumped out of the ground at any given time, and this line here is the demand – the amount of oil that is getting used at any given time.

The point at which these two lines cross is the price for oil. When the economy is growing, more oil is being consumed, which causes the demand for oil to increase, moving our line out here to the right. Notice how the supply and demand lines now cross at a higher price point. This means the price of oil is now more expensive. But on the other hand, when the economy slows, so does consumption of oil. This moves the demand line here to the left. Notice how the lines cross at a lower point.

While this is of course a simplistic example, this is how the price of oil really works. Just look at this chart of the price for a barrel of oil; the price of oil is constantly moving as supply and demand dynamics play out.

The next stock that is getting sold in the Berkshire portfolio video that I want to hit on is Activision Blizzard, ticker symbol ATVI. Activision has a market cap of 60 billion dollars and trades at a P/E ratio of 20 times. Buffett sold 7.5 million shares of the stock. Activision is a popular video game company and owns some of the most well-known brands in the industry, including World of Warcraft, Candy Crush, and Call of Duty.

At first, you may be wondering why Buffett even invested in a video game company in the first place. It seems to go against his philosophy of only investing in businesses you understand. However, this isn't a normal investment. Buffett's investment in Activision is what is known as merger arbitrage. Here's the background: Microsoft announced that it was going to be acquiring Activision for 95 a share. This means that for every share of stock an investor owns, Microsoft will give them 95 in cash.

There is one big caveat to that; that is assuming the deal goes through and Microsoft is allowed to move forward with the acquisition. Investors were skeptical of the deal as they believe the government would block the deal over concerns that Microsoft is becoming too powerful. This is why Activision's stock currently trades at 75 dollars a share despite the fact that Microsoft has said they are going to buy out the shares at 95.

With merger arbitrage, you buy a stock betting that the deal will go through. So in the case of Activision, if you buy the shares for 75 and the deal ends up going through, you walk away with a nice profit of 20 dollars per share. This is what Buffett was betting on when he became the third largest owner of Activision stock. However, Buffett cutting back on the stake in Activision suggests that he believes the probability of the deal being able to go through has decreased.

The evidence surely suggests that, given that in December the Federal Trade Commission came out and said they are going to sue to attempt to stop Microsoft from completing the acquisition. Other stocks being sold from the Berkshire stock portfolio include medical distributor McKesson, financial services company Ally Financial, and large supermarket chain Kroger. Shares sold out of these stocks were tiny relative to the others mentioned earlier in this video.

While the vast majority of the activity in the Berkshire portfolio was selling, there were some additional shares being purchased in three existing positions. Buffett increased his Apple stake by a minuscule 0.4 percent, bringing his ownership stake in the iPhone maker up to 5.92. He also increased his Paramount Global holding by 2.65 percent. Berkshire now owns 15.36 of that company. The largest increase was the 21.6 percent increase in building material company Louisiana Pacific; the ownership stake in Louisiana Pacific is now at 9.82 percent.

So I hope you found this update into Warren Buffett's portfolio entertaining. As a quick reminder, if you're interested in learning more about Buffett's investment approach, make sure to download the free PDF using the link in my description. It's 100 percent free; just fill out a quick survey so I can get a better sense of what you want to learn about regarding investing. Thanks for watching, and talk to you again soon.

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