Buffett’s BofA Sell-Off Hits $5.4 BILLION—Is He Getting Déjà Vu of Freddie Mac’s Disaster in 2008?

Warren Buffett, the Oracle of Omaha, is at it again—following his own golden rule of “Be fearful when others are greedy, and greedy when others are fearful.” And let’s just say, Buffett is sensing a whole lot of greed in the air right now. 

The 93-year-old investing legend has just made another colossal move, trimming his stake in Bank of America to the tune of $982 million. And this isn’t his first trip to the sell-off buffet (pun definitely intended). Since mid-July, Buffett’s Berkshire Hathaway has dumped a staggering $5.4 billion worth of Bank of America shares.

So, what gives? Is Buffett feeling spooked by something we don’t know? Let’s go to the beginning.

Buffett’s love affair with Bank of America began in 2011 when he swooped in to buy $5 billion in preferred stock. Back then, the bank was trading at a measly $5 a share, and Buffett’s investment looked like a Hail Mary pass. Fast forward to 2023, and that risky play turned into a touchdown dance. Bank of America’s stock was up 31% this year before Buffett started offloading like he was Marie Kondo-ing his portfolio.

So, why the sudden change of heart? Just last year, Buffett couldn’t stop praising Bank of America CEO Brian Moynihan, saying, “I like Brian Moynihan enormously. I don't wanna sell it.” But now, Buffett's offloading shares like there’s no tomorrow.

Let’s break it down. Bank of America’s numbers are looking a bit shaky. Their net interest margin, the difference between what they earn on loans and pay on deposits, dropped from 2.52% to 2.23%. That’s squeezing profits. Plus, they’ve set aside $13.5 billion in loan loss reserves—a big red flag that they're expecting some serious loan defaults.

Warren’s all about spotting warning signs. With commercial real estate looking wobbly, Bank of America’s stock dropping 10% after a 31% rise earlier this year, and $270 billion in long-term debt, it’s clear why he’s backing off. He might still like Moynihan, but even Buffett knows when it’s time to pull the plug. And here we are, with Buffett offloading 24.7 million shares between August 23 and August 27 alone.

(Source: Business Insider)

Now, let’s not get it twisted. Berkshire Hathaway still holds a massive stake in Bank of America—903.8 million shares worth a mind-boggling $35.9 billion as of the last count. But even with that, Buffett has been conspicuously silent about his motives for selling off nearly 13% of his stake since July. This has left many scratching their heads. Is this just a routine portfolio rebalancing? Or is Buffett seeing something that’s invisible to the rest of us?

One thing’s for sure: the market is feeling the tremors. Bank of America shares, which had been riding high, have now slid 10% to $39 since the selling spree began. That’s a pretty hefty drop for a bank that was once basking in Buffett’s approval. And let’s be honest, when Warren Buffett starts selling, people notice.

Buffett’s selling spree could be a sign that he believes the market has gotten a little too cozy with its own optimism. After all, this isn’t the first time he’s bailed out before the party ended in disaster. Back in 2007, just before the 2008 financial crisis hit, Buffett offloaded his entire stake in Freddie Mac, selling 130 million shares at around $60 each, a move that saved him billions when the stock later plummeted to under $1. 

He also sold a significant portion of his holdings in PetroChina, cashing out around $4 billion before the stock took a nosedive. Could his recent moves with Bank of America be another instance of him seeing the writing on the wall before the rest of us?

We don’t have the answer just yet. But if there’s one thing we can count on, it’s that Buffett’s moves are never random. His decision to cash out $5.4 billion is a clear signal that he’s playing it safe while the rest of us are still on the dance floor. The Oracle has spoken, and it might be time to take a long, hard look at your own portfolio.

Stock.News does not have positions in companies mentioned.