Here’s How Warren Buffett Decides To Sell a Stock

Warren Buffett didn’t become one of the world’s richest people by selling stocks just to turn a quick profit. Instead, his investing philosophy is built around buying shares of high-quality companies and then holding them “forever,” as he once wrote in a letter to shareholders. When the founder and CEO of Berkshire Hathaway does sell shares — as he has been doing lately — it makes news.

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Berkshire Hathaway sold more than 600 million shares of Apple through the third quarter of 2024. That reduced Buffett’s position in the tech giant by roughly two-thirds in 2024 — and that came after Berkshire Hathaway sold 10 million shares of Apple during the final quarter of 2023.

But how does Buffett actually make the decision to sell a stock?

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Selling at a Record Pace

The company has been selling stocks at a “record pace this year,” according to the Motley Fool. It finished the third quarter with a record amount of cash on its balance sheet, and was a net seller of stocks during the quarter, meaning it sold more shares than it bought. Berkshire’s net stock sales have exceeded $127 billion so far this year, marking the “most aggressive selling behavior in company history,” Motley Fool reported.

When Buffett sells stocks, it often has less to do with that stock’s price movement than with its underlying business fundamentals. As a blog on the Value Investing website noted, Buffett’s actual shareholder quote was as follows:

“Our favorite holding period is forever. We are just the opposite of those who hurry to sell and book profits when companies perform well but who tenaciously hang on to businesses that disappoint. (Investor) Peter Lynch aptly likens such behavior to cutting the flowers and watering the weeds.”

Although Buffett doesn’t obsess over swings in stock prices, he does keep an eye on metrics such as valuation, business profits, revenue growth and dividends. When those metrics don’t align with how Berkshire values companies, Buffett might get rid of some of the shares without necessarily getting rid of all of them.

That was the case with Apple, which Berkshire still has a large position in despite the recent sell-off. Selling the shares also bolstered Berkshire’s cash position — something the company is happy to do when it doesn’t see many buying opportunities.

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Buffett Strategies You Can Follow

If you’re looking for strategies Buffett uses when weighing whether to sell a stock, Motley Fool cited these two main reasons:

• Capital is needed to pursue other opportunities. During one of his shareholder meetings, Buffett said he would sell shares of a stock if Berkshire “needed the money” for another, cheaper stock. This strategy applies to any investor who sees an opportunity to invest in quality companies at a good price.

• Changing fundamentals. Keeping an eye on a company’s business and economic characteristics is important regardless of the investment. When you see a company experiencing lower profits, challenges to growth, declining market share or some other fundamental weakness, you should consider selling the stock and using your proceeds to invest in a company with stronger fundamentals.

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