Few people have as much influence over investor decisions as Warren Buffett. The Oracle of Omaha’s long history of choosing winners makes his decisions essential research for other investors, professionals and retail alike. Plus, if you don’t have the resources and experience to pick winning stocks, why not follow Buffett’s lead?
Buffett’s remarkable influence makes it noteworthy when his company, Berkshire Hathaway, chooses to sell 100% of its holdings in a company’s stock. If you’re holding them too you might want to think twice. Does Buffett know something that you don’t?
Bristol Myers Squibb
At the beginning of 2021, Berkshire Hathaway owned 5,202,674 shares of Bristol Myers Squibb (BMY). It dumped all those shares by the end of 2022’s first quarter.
Most pharmaceutical companies displayed excellent results during the COVID-19 pandemic, so why did Buffett decide to sell Bristol Myers Squibb? Two factors likely influenced the decision.
Most importantly, Bristol Myers Squibb never became a significant player in the rush to combat COVID-19. This prevented it from generating revenues that could have funded additional research. Plenty of other drug companies, such as Moderna, pursued a “covid strategy” and positioned themselves for well-funded research, development, and growth over the next several years. Unfortunately, BMY doesn’t have that advantage.
Secondly, Bristol Myers Squibb’s cancer-treatment drug Revlimid has lost some market share to generic competitors. Currently, it’s a modest loss, but generics could continue eating away at revenues generated by Revlimid.
Berkshire Hathaway held shares in Wells Fargo (WFC) since 1989. That’s not surprising. Buffett has a particular fondness for investing in bank stocks. Despite this, his company unloaded its final shares (675,054 of them) earlier this year.
Why did Buffett dump Wells Fargo?
Some analysts suspect that he has been selling off his shares over the last few years because he disapproves of the company’s questionable business practices. Between 2016 and 2017, Wells Fargo admitted that it opened about 3.5 million unauthorized accounts from 2009 to 2016. It broke its customers’ trust, and it wasn’t the only scandal. A host of other concerns included:
- Improperly repossessing cars
- Failing a community lending test
- Firing a whistleblower who reported fraud
- Overcharging small business retailers
- $1bn settlement for mortgage locks and auto-loan issues
- Altering business information without client knowledge
- SEC fine for leading investors astray
- Refunds over add-ons like pet insurance and legal fees
- Houses foreclosed on due to computer glitch
- Sanctioned by SEC over fee disclosure practices
Berkshire Hathaway started buying AbbVie (ABBV) shares in 2020. By the end of 2021, it had 3,033,561 shares, displaying what you might interpret as a major commitment to the drugmaker. And yet, Buffett and his team sold off every share in 2022. This was a rare example of Buffett buying a stock and failing to hold it for a long time period.
AbbVie suffers from some of the same problems as BMY. AbbVie became a safe haven for investors that needed to reduce risk in their portfolios during the pandemic. Unfortunately, the company didn’t become a major player in the fight against COVID-19.
Additionally, AbbVie’s anti-inflammatory drug Humira now faces generic competition in international markets. The drug still sells well in the U.S. Any hit to such a significant revenue-maker, however, does some damage. Only time will tell how much it affects AbbVie’s ability to fund further projects.
Some also suggest that Buffett uses AbbVie as a cash proxy. Rather than holding money in government securities he places it in AbbVie to earn a modest dividend and expects to slightly outperform cash holdings without taking on too much additional risk.