Warren Buffett has made headlines with his recent decision to downsize one of his longest-held and largest positions – Bank of America. Berkshire Hathaway recently sold 52.8 million BofA shares worth $2.3 billion, marking the first time since late 2019 that the conglomerate reduced its holding. Despite still owning 980.1 million BofA shares with a market value of $41.3 billion, it is a distant second to its massive $172.5 billion holding in Apple.
One possible driving factor behind the sale could be concerns over BofA’s valuation. The bank is currently trading at around 12 times forward earnings, compared to an average multiple of 10 times over the past two years. Additionally, BofA’s stock has rallied 24% this year, outperforming the S&P 500. It is possible that Berkshire is taking some profits after BofA’s substantial price increase.
Possible Tax Implications
Taxes could also be a motivating factor in Buffett’s decision to sell BofA shares. Earlier in the year, Buffett sold a portion of his Apple stake, which may indicate a strategy to avoid a higher tax bill as corporate tax rates potentially rise. Buffett has expressed his willingness to pay taxes, but also acknowledges the possibility of rates increasing in the future to support government spending.
Buffett’s investment in Bank of America has always been an interesting story, starting with how the idea came to him in a bathtub. He famously stated that he was sitting in the bathtub when he got the idea to check with BofA about the preferred stock. Additionally, when trying to reach BofA CEO Brian Moynihan, Buffett initially contacted the bank’s public call center and was ironically booted off the call by a service representative. However, once the two finally connected, the deal was swiftly put together.
Warren Buffett’s decision to sell a portion of his Bank of America shares is a significant move that has surprised many investors. While the exact reasons behind the sale may not be entirely clear, factors such as valuation and potential tax implications could have played a role. As one of the most successful investors of all time, Buffett’s actions are closely watched by the investment community, and this recent move with BofA is no exception.