How Buffett decides when to sell a stock and what dumping BofA says

When Warren Buffett, the ultimate buy-and-hold investor, sells a stock, it often sends a negative signal about the underlying business and maybe even the entire industry. The Sage of Omaha, whose preferred holding period is forever, is usually only motivated to exit a big position when he judges that the competitive edge of a business has eroded. “We’re more reluctant to sell them than most people,” Buffett said of his large positions at Berkshire’s annual meeting in 2009. “If we made the right decision going in, we like to ride that a very long time, and we’ve owned some stocks for decades. But if the competitive advantage disappears, if we really lose faith in the management, if we were wrong in the original analysis — and that happens — we sell.” For example, when Buffett invested in newspapers like the Omaha World-Herald and Buffalo News in the 1970s, he thought their franchises were impregnable. But by the early 2000s his view on the industry soured as declining advertising revenue and the transition to digital platforms destroyed profits. He eventually sold his 30-odd newspapers in early 2020. Bank of America sales Many top holdings in Berkshire Hathaway’s equity portfolio are decades old — Buffett has held Coca-Cola shares since 1988 and American Express since 1991. Maybe that’s why the 94-year-old investment legend recently raised eyebrows as he dumped about $9 billion of Bank of America shares in a selling spree starting in mid-July. Buffett famously bought $5 billion of BofA preferred stock and warrants in 2011 to shore up confidence in the embattled lender struggling with losses tied to subprime mortgages. He converted the warrants to common stock in 2017, making Berkshire the largest shareholder in BofA. The “Oracle of Omaha” then added 300 million more shares to his bet in 2018 and 2019. The recent BofA sales came after Buffett spent the past few years dumping a variety of longtime holdings in the banking industry, including JPMorgan , Goldman Sachs , Wells Fargo and U.S. Bancorp . Berkshire still holds a 10.3% stake in Bank of America. If the selling continues and the holding drops below the 10% reporting threshold, we won’t know how far Buffett has reduced the position until the quarterly 13-F updates. ‘We’re very cautious’ So, does Buffett think BofA and others have lost their competitive advantage? Maybe. Last year, shortly after the regional banking crisis that drove Silicon Valley Bank and First Republic into the arms of saviors , the Berkshire CEO hinted at nascent problems in the banking industry. “We don’t know where the shareholders of the big banks, necessarily, or the regional banks or any bank, are heading now,” Buffett said in 2023. “The American public is probably as confused about banking as ever. And that has consequences. Nobody knows what the consequences are because every event starts recreating a different dynamic.” Buffett said bank failures in 2008 during the Global Financial Crisis , and again in 2023, lessened confidence in the system, made worse by poor messaging by regulators and politicians. Meanwhile, digitalization and fintech made bank runs a simple matter at times of crisis. The collapse of Silicon Valley and Signature Bank early last year , two of the largest bank failures ever, prompted extraordinary rescues from regulators, who backstopped all deposits in the failed lenders and provided an additional funding facility for other troubled banks. “You don’t know what has happened to the stickiness of deposits at all,” Buffett said. “It got changed by 2008. It’s gotten changed by this. And that changes everything. We’re very cautious in a situation like that about ownership of banks.” At the time, Buffett foresaw more bank failures down the road , but stuck with his Bank of America investment, partly because he personally negotiated the original deal and admired CEO Brian Moynihan. “But do I know how to project out what’s going to happen from here?,” Buffett asked at the time of last year’s failures. “The answer is I don’t.” Not exactly a ringing endorsement.