Mark Riddix, 06.09.10, 11:13 AM EDT
How Warren Buffett is trimming his portfolio.
The investing decisions of Warren Buffett are mimicked by investors worldwide. Many value investors and market experts often look to Buffett for help in navigating the murky waters of investing. Buffett has built a fortune by taking advantage of opportunities when others have been fearful, and a lot can be learned by paying attention to his moves. So what exactly has the Oracle of Omaha been up to? Shockingly enough, the famed buy-and-hold investor has been dumping shares of some long-term holdings over the past few quarters.
Buffett's Stock Sales
Buffett has eliminated his 2.3 million share stake in the banking firm Sun Trust Bank. He completely sold off investment positions in insurance companies Travelers Insurance ( TRV - news - people ), UnitedHealth Group ( UNH - news - people ) and WellPoint Inc. ( WLP - news - people ) Buffett also reduced his holdings in defensive stocks Procter & Gamble ( PG - news - people ) by 9% and Johnson & Johnson ( JNJ - news - people ) by 26% earlier in the year. He also trimmed his stake in ratings agency Moody's ( MCO - news - people ) and banking giant M&T Bank ( MTB - news - people ). Buffett sold off shares of auto retailer CarMax ( KMX - news - people ), oil and gas conglomerate ConocoPhillips ( COP - news - people ) and struggling newspaper firm Gannett ( GCI - news - people ).
The big sale, however, was Buffett's disposal of Kraft's shares. He sold over 31 million shares of Kraft Foods ( KFT - news - people ), which had a market value of approximately $1 billion. He still owns a 6.3% stake in Kraft with over 106 million shares. Many of these sales came as a shock to investors. Market spectators began to wonder if Buffett was turning negative on U.S. equities. Why is the man, who was once quoted as saying his favorite long-term holding period for stocks is forever, selling stocks?
Investors shouldn't read too much into Buffett's recent sales. The answer is pretty simple: Buffett is reducing his stake in many stocks to increase the capital position at Buffett's holding company, Berkshire Hathaway ( BRK - news - people ). Berkshire Hathaway has put a lot of its cash to work over the past two years. Buffett deployed substantial amounts of cash buying stock and warrants in Goldman Sachs ( GS - news - people ) and General Electric ( GE - news - people ). Recently, Berkshire spent a lot of cash financing its $27 billion acquisition of railroad company Burlington Northern Santa Fe ( BNI - news - people ). All of these purchases have caused Buffett to dispose of many stocks to replenish the coffers at Berkshire Hathaway.
The sale of Kraft, however, is a completely different animal. This move was anticipated as Buffett has continuously voiced his displeasure with Kraft management, including disapproval of Kraft's $19.6 billion acquisition of rival Cadbury ( CBY - news - people ). Buffett voted against the proposed merger, which eventually gained shareholder approval. After the merger Buffett trimmed his $4 billion stake substantially.
It should also not be overlooked that Buffett may be selling shares because he has found a better opportunity elsewhere. Buffett may be turning his attention to other sectors or looking to invest in international markets. He is famous for selling off one cheap investment in order to buy a cheaper investment.
The Bottom Line
Investors should know that if Warren Buffett is building up his cash stockpile that the legendary investor must see a better opportunity on the horizon.CNBC VIDEO: Warren Buffett Testifies to Financial Crisis Inquiry Commission
Download the 2009 Warren Buffett Letter & 2009 Annual Report to Berkshire Hathaway Shareholders
Download the 1977 - 2009 Warren Buffett Letter's to Berkshire Hathaway Shareholders
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