Jason Lee/Reuters
- Warren Buffett's Berkshire Hathaway has sold more than 60% of its BYD shares since last summer.
- Buffett may have been taking profits, pruning his portfolio, or cutting his geopolitical exposure.
- Here's why the stock sales are surprising, and what the thinking might be behind them.
Warren Buffett famously says his "favorite holding period is forever," and both he and his business partner, Charlie Munger, have gushed about BYD this year.
Yet their Berkshire Hathaway conglomerate has sold more than 60% of its stake in the Chinese electric vehicle maker since last August. Here's a closer look at the unusual move.
Bye bye BYD
Buffett and Munger paid $232 million for 225 million BYD shares in 2008, representing 25% of the company's Hong Kong-listed shares, or 9.9% of the overall company.
They disclosed their first sale last year after 14 years without touching the position, and since then have slashed their holding to about 88 million shares as of October 25 — less than 8% of the Hong Kong shares, stock-exchange filings show.
The disposals are striking for several reasons. Buffett rarely sells a stock without a compelling reason, as doing so can incur taxes, and he takes pride in owning companies for the long run.
For example, Berkshire hasn't touched its stakes in Coca-Cola and American Express in nearly 30 years — and the two positions are now worth a combined $50 billion or nearly 10% of Berkshire's net assets.
Buffett and Munger will dump a stock or dispose of a business if there's a major decline in its situation or prospects. For example, they exited the "Big Four" US airlines after the pandemic struck in early 2020, as they believed air travel wouldn't recover for years to come. They also sold Wells Fargo after years of scandals, despite being one of its biggest shareholders for many years.
Berkshire has scored a big win with BYD, as it paid the equivalent of about $1 a share in 2008, and the Hong Kong-listed shares now change hands at more than $30.
An "extraordinary" company
Buffett would typically keep that kind of winning wager in his portfolio, to avoid paying capital-gains taxes, capture further upside for the stock, and be able to crow about it for years to come. That's especially the case when there don't appear to have been any big problems at the company that have eroded its growth potential or market position.
The stock sales are also surprising given both Buffett and Munger have hailed BYD as a truly special company this year. Buffett called it and CEO Wang Chuanfu "extraordinary" in April, while Munger recently described the automaker as a "miracle," and said its leader is a manufacturing genius who's "better at actually making things" than Tesla CEO Elon Musk.
Finally, it's unlikely that Buffett needed to free up money. Berkshire was sitting on a record $157 billion of cash, Treasury bills, and other liquid assets at the end of September, its latest earnings show.
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Why did Berkshire sell?
A big reason that Berkshire has been cashing in its BYD stock may be geopolitics. The US and China have been clashing in recent months over everything from microchips and Taiwan to Russia's invasion of Ukraine.
Buffett and Munger may have decided to pull back from China given the rising tensions — the reason why they dumped Taiwan Semiconductor only a few months after buying it.
Buffett said in April that the breathless rise in BYD stock over the past few years, and the possibility of finding something better to invest in, were factors in the sale. He and Munger may have opted to realize some of the roughly 30-fold gain they'd made on the stock, especially as the company faces more than a few risks.
BYD is more aggressively valued than in years past, it's still in a capital-intensive business in a brutally competitive industry, and investing heavily in battery development and other technologies.
The Berkshire chief may have found it easier to offload BYD than other stocks because it was never the best fit for his portfolio. The 93-year-old investor generally sticks to US-based companies in industries he deeply understands like fast food or insurance – a Chinese EV maker was always out of his comfort zone.
It's not clear whether Buffett and Munger sold BYD stock because they wanted to take profits, free up cash, prune their portfolio, cut their geopolitical risk, or avoid future problems at the company. Berkshire shareholders will be watching closely to see if they sell any more shares – or provide further explanation.