Warren Buffett is probably the most famous investor who ever lived. He started investing at an early age, refined his investment strategy, learned from his mistakes, and made a fortune by investing. He is also very generous with his investment wisdom, and while he doesn’t spell out his investment strategies or thought process for everyone, investors can learn a great deal from him.
One of the most important lessons investors can take from the wizard of Omaha is that he also makes mistakes. Everyone makes mistakes, and Buffett is no exception. Despite his experience and investment wisdom he has acquired over the decades, Buffett sometimes read the market wrong or bet on the wrong company.
He believes in long-term holding, but he also doesn’t waste any time shedding a business that he deems “not good enough anymore.” And just like his buys, he might miscalculate his exits as well.
Buffett’s Canadian mistake
Warren Buffett exited his position in Restaurants Brands International (TSX:QSR)(NYSE:QSR) recently. The news broke when Buffett’s company, Berkshire Hathaway, filed a regulatory report on August 13th. We don’t know precisely when Buffett exited the position. Still, assuming that he didn’t waste a lot of time reporting and he only exited the position a few days earlier, he benefited from about a 70% recovery.
The company hit its recovery peak in July (96%). Now the question is this: If Buffett had already seen the company recover, why did he sell it in the first place? If he was expecting the restaurant or fast-food business to go down, he would have exited some other positions as well. And RBI isn’t completely in shambles either. Two of its three brands, Tim Hortons and Burger King, saw their sales decline, but Popeyes explosive growth helped balance things out a bit.
The company hasn’t slashed its dividends yet, and its underlying brands are still strong, especially in their home markets. Tim Hortons was having a few problems, but the company is exploring new avenues internationally.
Should you follow?
RBI’s recent quarterly report endorsed Buffett’s decision to sell the company, but it still might have been a hasty decision. The food and travel industry is suffering around the globe, and apart from a few exceptional cases, most businesses in these industries see consecutive bad quarters. The balance sheet is strong, revenue generation is picking up, and the company might turn things around in the next couple of quarters.
So if you have the company in your portfolio, especially as a dividend stock, you may want to hold on to it.
It’s highly unlikely that Buffett exited the position on a whim or some previous bias (like his dislike for airlines) dictated his decision. In another instance, he would have sold the company to free up capital for something better, but that’s not the case, especially if you consider the cash pile Berkshire Hathaway has been sitting on. We might conclude that Buffett stopped seeing RBI as a decent long-term holding.
Speaking of Warren Buffett...
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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Adam Othman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares). The Motley Fool recommends RESTAURANT BRANDS INTERNATIONAL INC and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), and short December 2020 $210 calls on Berkshire Hathaway (B shares).