Which stocks is Warren Buffett buying and selling? We usually have to wait until Berkshire Hathaway (BRK.A) (BRK.B) submits its 13F filings to the U.S. Securities and Exchange Commission to find out. Based on past submissions, Berkshire’s next 13-F filing won’t be until next week.

However, we don’t have to wait until then to know about one move Buffett has recently made. The legendary investor sold shares of a major holding in Berkshire’s portfolio.

Losing its drive
In Buffett’s 2021 letter to Berkshire Hathaway shareholders, he wrote that Berkshire owned 225 million shares of Chinese electric-vehicle (EV) maker BYD (BYDD.F) (BYDDY). That was the exact number of shares owned in 2009, a year after Berkshire first initiated a stake in the company.

However, Buffett began trimming Berkshire’s position in the EV stock quite a bit last year. And the selling has continued into 2023.

A filing to the Hong Kong stock exchange in late January revealed that the legendary investor has sold another 1.55 million shares of BYD. This brings Berkshire’s total number of shares of the EV maker down to a little over 141.6 million — a decrease of roughly 37%.

Why is Buffett selling?
Anytime Buffett sells a stock, investors want to know why. Unfortunately, he usually doesn’t comment publicly on the rationale behind the decisions. Thus far, that’s been the case with the sales of BYD stock.

We can rule out one reason, though. Buffett isn’t selling BYD because Berkshire needs to raise cash. The conglomerate ended the third quarter of 2022 with cash, cash equivalents, and short-term investments totaling more than $105 billion.

It also seems unlikely that Buffett has soured on the prospects of the EV market. The number of EVs sold in the future will almost certainly be significantly greater than the current numbers.

BYD Executive Vice President Stella Li offered a possible motivation behind Buffett’s selling in an interview in December 2022. Li suggested that Buffett simply wanted to take some profits off the table. She added: “I don’t feel this is any indication he’s abandoned BYD. He loves BYD, he loves management.”

That could be the case. However, there are plenty of other stocks in Berkshire’s portfolio that Buffett isn’t selling that have generated significant profits.

Bye-bye, BYD?
I think that Buffett will continue to cut Berkshire’s stake in BYD. That doesn’t necessarily mean that he will completely exit the position in the Chinese EV maker, though.

Buffett is a master of weighing potential risks against rewards. When he perceives that the risk-reward proposition of a given investment is less attractive, he adjusts. My hunch is that that’s exactly what he has been doing with BYD.

To be clear, I don’t believe that BYD’s stock performance has anything to do with his decision to sell. Even though the EV company’s shares fell in 2022, Berkshire’s portfolio had quite a few bigger losers. Also, BYD has been on a roll in recent months.

But investing in Chinese companies comes with a greater risk than investing in companies based in the U.S., Europe, or other areas. Buffett could think that it’s time to reduce Berkshire’s exposure to that risk.

Should other investors who own BYD stock follow his lead? Maybe. It’s important to remember that BYD is one of the top 10 holdings in Berkshire’s portfolio. Reducing the position size is appropriate if Buffett feels the risk level has increased. Such a move wouldn’t be as necessary for an investor with a really small stake in the EV stock.

However, I do think that every investor should regularly re-evaluate the risk-reward profiles of each stock they own. And when Buffett sells a stock, it’s definitely worth taking a hard look to see if it makes sense to follow suit.

— Keith Speights

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Source: The Motley Fool