There has been no investor like Warren Buffett. Since becoming CEO of Berkshire Hathaway (BRK-A)(BRK-B) in 1965, he has overseen compounded gains of 20% a year. That’s nearly double the returns of the S&P 500.
Not every year was a winning year. At numerous points over the past 58 years, he lost to the popular benchmark index. In just the last 10 years he has underperformed four times, and some of those were by a wide margin. That’s a 60% batting average.
Yet Buffett’s strategy of buying excellent companies at fair prices and then holding them long-term continues to pay off. We’re talking about an aggregate gain of 4,384,748%! In comparison, the S&P 500 delivered only 31,223%, including dividends.
There is good reason Buffett is called the Oracle of Omaha. To paraphrase the old E.F. Hutton commercial, when Buffett speaks, people listen.
But what was he saying in his latest 13F-HR filing with the Securities & Exchange Commission. That’s the form Wall Street’s wealthiest investors file showing which stocks they bought and sold over the past three months.
Buffett’s 13F gives investors a peek behind the curtain to see where the world’s most successful investor was placing his bets – or taking his money off the table. And in the fourth quarter of 2024, Buffett was busy again. He only added one new stock to his portfolio, beer and liquor distributor Constellation Brands (STZ), and he completely sold out of one stock Ulta Beauty (ULTA) (and two S&P 500 ETFs).
However, he was also selling down his positions in U.S. bank stocks. That seems pretty significant, particularly because one of them was owned for nearly 20 years. So let’s look closer at the three banks Buffett bailed on.
Bank of America (BAC) is Buffett’s longest held bank stock. He first bought shares in the second quarter of 2007, a trade that goes back to the financial crisis, and held tight over the years. He had become the bank’s largest shareholder, owning 13% of its outstanding shares.
Even after the regional banking crisis in early 2023, the Oracle didn’t pare his position. Yet beginning last summer, Buffett started trimming his holdings, selling 1% to 2% of his stake at a time. In Q4, however, he dumped almost 15% of BAC stock, over 117 million shares worth $5.1 billion. He now owns less than 9% of Bank of America’s shares.
The bank, though, has underperformed the market over the past three and five years after it invested in long-term Treasuries to enhance its earnings only to have the Federal Reserve hike interest rates an unprecedented 11 times between 2022 and 2023. Stuck holding low-yield investments where most won’t mature till next year, Bank of America has missed out on buying higher-yield securities.
The second bank Buffett sold down was Capital One Financial (COF), a stock he had only begun buying in 2023. This was the second biggest drawdown Buffett made, reducing his position by 18%, or some 1.6 million shares worth $288.4 million.
If Buffett believes there is a market crash coming, and there is good reason he does, dumping Capital One Financial makes sense. It is one of the most exposed credit card companies on the market, and it is acquiring Discover Financial Services (DFS) for $35 billion. That will make it even more unprotected to a tidal wave of delinquencies and defaults that would follow.
Credit card debt just hot a record $1.2 trillion, according to the Fed, jumping $45 billion in Q4. Delinquencies, are also high, with more than 7% of cardholders becoming delinquent in the past year. With inflation still high and starting to rise again – it accelerated 3% in January – and the Fed halting any further interest rate cuts, the cost of living for Americans remains high.
Citigroup (C) is the third bank Buffett bailed out on and the one he shed the most. He dumped 73.5% of his holdings, over 40.6 million shares worth $2.7 billion. He owned the bank only slightly longer than Capital One, and still owns more than 14 million shares valued at $1.2 billion/ But it's clear he wants to unwind this trade.
The money center is also witnessing the same impacts from the Fed’s hyper aggressive interest-rate policies, undermining the turnaround story Buffett likely thought he was buying into. Although Citigroup has made progress by reducing costs and lowering operating expenses, its return on tangible common equity has declined to 7% from 7.7%. Most of its performance metrics fell during 2024.
Heading into potential market turmoil, Buffett likely wanted to reduce his exposure to any downdraft.
