Thousands of investors track Warren Buffett’s every move. His latest transactions are unsettling.
Right now, the master of investing is buying some stocks, but he’s selling others, offering clear advice on how to manage your portfolio today.
Don’t trust the economy
Warren Buffett is ditching bank stocks like never before. These businesses are extremely vulnerable to economic downturns, and the moves signal a lack of confidence in the future ahead.
“Warren Buffett’s Berkshire Hathaway built an $8 billion stake in JPMorgan, then virtually eliminated it in six months,” reported Business Insider. “Berkshire’s selling is surprising, given Buffett personally owned the stock in 2012, two Berkshire executives sit on JPMorgan’s board, and he’s a long-time admirer of CEO Jamie Dimon.”
It goes even deeper than this. Wells Fargo, one of his longest-tenured positions, was also cut dramatically.
“Warren Buffett’s Berkshire Hathaway sold a large chunk of its investment in Wells Fargo stock,” Barron‘s noted. The sale totaled 100 million shares, roughly 40% of the entire stake.
Big bank stocks like JPMorgan, Wells Fargo, and RBC have multi-sector, multi-country exposure. Their activities span nearly every nook and corner of the economy. If there’s weakness anywhere, these companies will feel it directly.
The economy today is clearly weaker than it was in January of 2020. Yet somehow, RBC stock trades at the same valuation! If markets turn sour, these stocks will be the first to fall.
Warren Buffett hates these stocks
No industry was more impacted by COVID-19 than airlines. Today, passenger traffic is still 90% lower than 2019 levels. Almost every carrier is bleeding cash.
Air Canada (TSX:AC), for example, is losing around $1 billion every 90 days. Positive vaccine news pushed the stock price up recently, but most analysts still anticipate another loss in 2021.
The clock is ticking. Buffett knows this. That’s why he sold all of his airline stocks in mid-2020. I’m not sure he’ll ever return to the sector.
“The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money,” he once remarked, referring to airlines. Right now, it’s very expensive to operate an airline, and profits may prove ephemeral for years to come.
We have enough industry supply for a 2019 world, but only 10% of the demand. As Buffett puts it, “there are too many planes.” Even if demand quadruples in 2021, pricing will remain weak, making profits all but impossible. That’ll weigh on share prices.
Buy these stocks
Right now, Buffett is avoiding airline and bank stocks. But that doesn’t mean he’s bearish on all stocks. He still has hundreds of billions of dollars invested. In fact, he’s buying some companies right now.
During the COVID-19 crash, many stocks cratered, but some stocks rose in value. No matter where the economy heads, some business models will prove resilient, delivering reliable gains to shareholders.
Sell stocks that you have low confidence in, but don’t neglect your buy list.
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The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares) and recommends the following options: short January 2021 $200 puts on Berkshire Hathaway (B shares) and long January 2021 $200 calls on Berkshire Hathaway (B shares). Fool contributor Ryan Vanzo has no position in any stocks mentioned.