What does it mean for Warren Buffett to reduce his holdings?

Hong Kong stocks decoded

2024-06-18 19:34Posted on the official account of Guangdong Hong Kong Stock Decoding

What does it mean for Warren Buffett to reduce his holdings?

Recently, Warren Buffett has attracted the attention of the market: he continued to reduce his holdings in Apple (AAPL.US) and BYD (01211.HK). Does the "God of Stocks" reduce its holdings have any investment implications?

Warren Buffett reduced his stake in BYD

From the Hong Kong Stock Exchange (00388. According to the data on the equity disclosure website, Buffett's flagship Berkshire (BRK.B.US) reduced its holdings of BYD H shares again on June 11 this year, reducing the number of shares by 1.348 million shares, with an average price of HK $230.46, a discount of 1.34% from the current price of HK $233.60, and a discount of 1.34% compared with the current BYD (002594. SZ) share price of RMB255.64, a discount of 16.22%.

After the completion of this reduction, Berkshire still holds 75.69 million H shares of BYD, accounting for 2.60% of BYD's total existing issued shares (including A shares and H shares) of 2.909 billion shares, accounting for 6.90% of the 1.098 billion issued H shares. Based on the current H-share price of HK$233.60, Berkshire's market value in BYD still reaches HK$17.7 billion, or about US$2.265 billion.

Of course, this isn't Berkshire's first downstake. 16 years ago, after Buffett followed Munger's advice to build a position in BYD, he held a total of 225 million H shares of BYD. The recorded reduction was from August 2022, when Berkshire continued to reduce its stake in BYD.

See the table below, Finet summarized Berkshire's multiple holdings reduction based on the data disclosed by the Hong Kong Stock Exchange, and calculated that Berkshire has disclosed a cumulative reduction of 32.671 million shares of BYD in the past three years, with a total cash amount of HK $7.254 billion, or about US$929 million, and an average price of HK $222.02.

It should be noted that the above was voluntarily disclosed by Berkshire. As can be seen from the above data, there are some of the reduction transactions that have not been disclosed in detail, which means that the actual amount of Berkshire's reduction and cash out is much higher than the total amount mentioned above. However, Finet inferred from the existing information disclosure and Berkshire's financial reports in the early years that the first reduction should have occurred before its first disclosure of the shareholding reduction information on August 24, 2022, but not earlier than the end of 2021.

Looking at BYD's stock price chart in the past ten years, it has continued to rise since 2021, and this is also the time when the wave of new energy vehicle development led by Tesla (TSLA.US) rises, BYD, as the world's leading battery supplier and a new energy vehicle manufacturer that catches up with Tesla, is naturally also sought after, and the stock price has risen more than five times at once, no wonder Berkshire will reduce its holdings from 2022 - it is the opportunity to harvest while the stock price is high.

Berkshire's financial report in the early years disclosed that the cost price of Buffett's 225 million shares of BYD was only $232 million, or about HK$8.05 per share! Judging from the total amount of Berkshire's officially disclosed reductions, it is more than 4 times its total cost price, not counting the undisclosed reductions, as well as the shares it still holds, which are worth HK$17.7 billion, or about US$2.265 billion, which is 9.76 times the cost price of Berkshire's earliest 225 million shares of US$232 million.

Berkshire did not liquidate its positions all at once, perhaps believing that BYD's H-share share price still has room to rise.

In addition to BYD, Berkshire has also recently begun to reduce its holdings in Apple.

Berkshire reduced its holdings in apples

Starting in the fourth quarter of 2023, Berkshire began to reduce its holdings of Apple, reducing its holdings by 10 million shares in the current quarter, and cashing out $1.925 billion based on Apple's stock price of $192.53 at the end of the quarter, and in the first quarter of 2024, it continued to reduce its holdings of 116 million shares of Apple, or cashing out $19.925 billion based on Apple's stock price of $171.48 at the end of the quarter. The two reductions totaled US$21.8 billion, or about HK$170.584 billion.

Even after the reduction, Apple remains Berkshire's largest holding, accounting for 40.81% of its U.S. stock portfolio, with a market capitalization of $135.4 billion. Berkshire remains Apple's third-largest shareholder, behind SuperChampion and BlackRock, a top asset management group.

In the same way, Warren Buffett's reduction in Apple is not because he is not optimistic about Apple, or because of tax and strategic considerations for his own investment.

In its Q1 2024 results, Berkshire said it will continue to hold significant short-term investments, including short-term U.S. bonds, and believes that it is essential to have ample liquidity, insisting on safety over yield in short-term investments. As of March 31, 2024, Berkshire's cash, cash equivalents and U.S. Treasury bills held a total of $143.509 billion, an increase of $21.664 billion from the end of 2023, and the proportion of its total investment in insurance business increased from 24.75% at the end of 2023 to 29.35%, as shown in the chart below.

Therefore, Berkshire may be reducing its holdings in order to cash out for hedging and other opportunities in the future.

conclusion

The "god of stocks" is also a human being, and Buffett also has times when he looks away. For example, it can be seen from its past transactions to reduce its holdings of BYD that Berkshire does not step on the right point every time, and Berkshire's reduction at the end of 2022 happens to be during BYD's phased low period, and if you wait a little longer, you can earn hundreds of millions more.

It can be seen that the pursuit of maximizing returns, even for the "god of stocks", is an impossible task, and it is not realistic. Warren Buffett cashes out at the right time in order to avoid risk and earn safer risk-free returns (through U.S. Treasuries).

However, from Warren Buffett, we can still learn that investment should start from its own overall investment strategy, rather than focusing on maximizing the benefits of a certain target and optimizing the use of funds.

Investors should also avoid several psychological biases, including:

1) Anchoring effect, that is, to restrict buying and selling behavior with a specific value as the goal, when making decisions, the overall situation should be objectively evaluated, such as the economic outlook, the impact of macro policies on the market, and more importantly, to understand what you want, not to take risks that are not worth it, and not to let go of the benefits that can be easily earned.

2) Herd effect: do not blindly follow the market, but should make investment decisions based on your actual situation and objective judgment.

3) Endowment bias: reluctant to give up assets with certain feelings, the strategy is to evaluate objectively, understand their real needs, and make rational judgments.

4) Regret-aversion bias: Fear that decisions made will lead to negative outcomes and prefer to maintain the status quo. The way to deal with it is to first understand your investment goals, find out how to achieve your goals, and act with self-discipline.

Author: Mao Ting

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