Why Warren Buffett, Berkshire Halved $4 Billion Chevron Stake: Experts
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Warren Buffett built a $4 billion Chevron stake in 6 months — then halved it last quarter. Here's how 4 experts explain the surprise sale.

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  • Warren Buffett sold 51% of his massive Chevron stake after building it last year.
  • Experts pointed to fossil-fuel concerns, fast profits, and pressure on oil prices as reasons.
  • Berkshire Hathaway's virtual exit from Wells Fargo didn't surprise them.

Warren Buffett's Berkshire Hathaway built a $4.1 billion Chevron stake from scratch in the second half of 2020, then turned around and sold 51% of its position in the oil-and-gas company last quarter.

The famed investor may have caved to environmental concerns, decided to cash out, or soured on the stock's short-term prospects, experts say.

"I'm surprised Berkshire cut its stake in Chevron in half so soon after purchasing it, since one of Buffett's most famous sayings is 'my favorite holding period is forever,'" John Longo, a finance professor at Rutgers University and the author of "Buffett's Tips: A Guide to Financial Literacy and Life," told Insider.

Buffett and his team may have slashed their Chevron position as part of a broader effort to reduce Berkshire's exposure to fossil-fuel stocks, Longo said. He pointed to their exit from another oil company, Suncor Energy, last quarter.

"BlackRock's Larry Fink has been vocal about CEOs needing to focus more on environmental, social, and corporate governance (ESG) issues, so Berkshire may be heeding his call," Longo said.

Berkshire may also have cut its Chevron position because it wanted to take some profits off the table, David Kass, a finance professor at the University of Maryland, told Insider.

"Buffett may have decided to realize a 35% profit in a short period of time," Kass said, pointing out that Berkshire spent an average of $83 per Chevron share, and the company's stock price surged as high as $112 last quarter.

The Berkshire chief may also have determined that oil prices were more likely to fall than rise in the coming months, weakening the near-term outlook for Chevron stock, Kass added.

Alternatively, Buffett and his deputies may have realized they made a mistake on Chevron and corrected it, or placed a short-term bet on the energy company. Adam Mead, the author of "The Complete Financial History of Berkshire Hathaway" and head of Mead Capital Management, told Insider that he sees the second option as more likely.

"I'd venture a guess that the position was considered to have small downside and big enough upside to part with some of Berkshire's cash," Mead said. "The runup in price over a few months was enough to induce them to sell."

Buffett knows the oil-and-gas industry well enough to act with conviction, Mead added, and has made similar short-term wagers on PetroChina and Exxon in the past.

However, the simplest explanation is that Buffett changed his mind, investor Thomas Russo told Insider. He may have bought Chevron shares because they looked cheap and appeared poised to stage a comeback, Russo said, then halved his stake once he realized how quickly renewables are taking off, and how much pressure there is on fossil-fuel companies to clean up their act.

"It's conceivable it's just not worth it," said Russo, the managing member of Gardner Russo & Quinn, which holds over $1.5 billion of Berkshire stock.

Buffett made other notable moves

Berkshire's latest portfolio update revealed that it boosted its Kroger stake by over 50% last quarter. Longo described that as a "classic value-investing move." He highlighted the grocer's modest valuation, significant technology investments, the underperformance of its stock relative to Walmart and Target, and its ownership of real estate worth more than its market capitalization.

Buffett and his team virtually eliminated their Wells Fargo stake last quarter as well, even though the bank has been a cornerstone of Berkshire's portfolio for decades. Longo wasn't surprised by that as Buffett's business partner, Charlie Munger, said earlier this year that the Berkshire chief was disenchanted with the scandal-hit lender.

Berkshire slashed other bank holdings, and eliminated its JPMorgan and Goldman Sachs stakes entirely last year. Those disposals might indicate that Buffett is bracing for a wave of defaults, Kass said. The investor may have plowed over $2 billion into Bank of America stock over 12 days last fall because he considered the lender to be less risky than its peers, he added.

"Buffett's exit from GS, JPM, and WFC is perhaps a reflection of his fear of very bad outcomes from the pandemic with numerous defaults on bank loans, especially commercial loans," Kass said. "Bank of America has less exposure to commercial loans than JPM and WFC."

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