Titled "Battle of the Billionaires: Buffett Exits, Halvorsen Enters," let's dive into the intriguing world of stock investment, as two titans of finance face off in an unfolding drama.
November's news cycle was filled with significant events. The 2024 election results sparked stock market highs, corporate earnings surpassed expectations, and the October inflation report maintained the bull market rally. Amidst this bustle, a critical detail might have been overlooked: the November 14th deadline for filing Form 13F with the Securities and Exchange Commission (SEC).
Institutional investors with over $100 million in assets are required to file a 13F form within 45 days of the end of the quarter, giving insight into which stocks major investors bought and sold. Among these, none draw more attention than the "Oracle of Omaha," Warren Buffett, whose 5,800,000% return on Berkshire Hathaway Class A shares since taking the helm nearly 60 years ago makes him a beacon in the investment world.
However, not all billionaire investors share the same investment strategies. For example, while Buffett favored Domino's Pizza during the third quarter, eight other billionaire asset managers opted to sell it. This quarter also highlighted a battle over Bank of America (BAC 1.36%) shares between Buffett and Ole Andreas Halvorsen, the founder of Viking Global Investors.
Buffett slashes Bank of America position in half
Buffett, an optimistic and well-known long-term investor, has taken a different stance during the past eight quarters. Berkshire Hathaway's net sales of stocks totaled $166.2 billion, with a notable chunk attributable to their top holding, Apple. Since July 17, they have sold more than 266 million shares of Bank of America, amounting to roughly $10.5 billion and a nearly 26% reduction in Buffett's stake in the leading American money-center bank.
Several reasons could explain Buffett's sell-off, including tax implications and the historically expensive stock market. Buffett believes the corporate income tax rate will rise, making the timing of gains advantageous. The stock market's record-high Buffett Index and Cyclically Adjusted P/E ratio (CAPE ratio) points to limited value availability. Bank of America's current 34% premium to its listed book value further highlights its pricey state.
Halvorsen's Viking Global invests $800 million in Bank of America
Conversely, Halvorsen and his team at Viking Global Investors see opportunity in Bank of America. In the September quarter, they purchased 19,959,530 Bank of America shares, amounting to a $800 million investment. This marked a shift in their position, as Bank of America was not in their portfolio as of June 30, 2023.
Halvorsen's interest in financial stocks, coupled with his earnings growth optimism, makes Bank of America an attractive investment. He understands the nonlinearity of the economic cycle, with slower periods lasting significantly longer than recessions. Bank stocks, like Bank of America, have ample potential to grow their loan portfolios and increase book value during periods of growth.
Halvorsen also appreciates the Fed's approach to interest rate cuts, ensuring a proactive monetary policy. Moreover, Bank of America's capital-return program can return upwards of $20 billion to shareholders annually, reducing its share count by 27% over the past seven years.
Bank of America has excelled in controlling expenses as well, strengthening its digital banking options and increasing the proportion of digitally enabled loan sales. The leniency of banking regulations under the incoming Trump administration also lends favorable observations towards Bank of America's outlook.
Though the stock market is still expensive, Bank of America's 13-times forward-year earnings may yield modest growth opportunities in the coming years.
In light of Buffett's significant sell-off of Bank of America shares, some investors may now see an opportunity to invest in the company. Ole Andreas Halvorsen, founder of Viking Global Investors, purchased $800 million worth of Bank of America shares during the recent quarter, recognizing its potential growth amidst the stock market's expensive state.
The decision to invest in Bank of America by Viking Global Investors was likely influenced by several factors, including Halvorsen's interest in financial stocks, his optimism about earnings growth, and his appreciation for the Fed's interest rate cuts. Additionally, Bank of America's capital-return program and cost-cutting measures, along with the potential benefits of lenient banking regulations, make the company an attractive investment opportunity.
