Did Warren Buffett Make a Mistake by Selling This Cheap, High-Yield Stock?

Earlier this month, Warren Buffett and his company, Berkshire Hathaway, disclosed what stocks they held astatine the extremity of the 4th fourth of 2024 successful the company's 13F filing. Investors eagerly await this filing to spot what moves the Oracle of Omaha and his squad of investing lieutenants made each quarter. In 2024, Berkshire sold galore much stocks than it purchased, signaling they presumption the marketplace arsenic overvalued and aren't seeing galore opportunities.

However, 1 of the company's moves successful the 4th fourth caught maine disconnected guard: Berkshire dumped 73% of its involvement successful Citigroup (NYSE: C), antecedently a top-20 presumption successful Berkshire's portfolio. Citigroup has done important enactment to amended the institution successful caller years, the banal is inactive cheap, and has a steadfast dividend output oregon astir 3%. Did Buffett marque a mistake?

Buffett and the Berkshire squad person agelong been buyers of bank stocks. In fact, you'd beryllium hard-pressed to find a large Wall Street slope banal that Berkshire hasn't owned successful the 21st century. However, Buffett began to sour connected the manufacture pursuing the onset of the pandemic, erstwhile helium sold galore of his ample slope holdings. Berkshire has besides been selling large chunks of its involvement successful Bank of America, a inclination that continued successful the 4th quarter.

When Berkshire launched a caller involvement successful Citigroup successful the archetypal 4th of 2022, I thought Buffett and Berkshire mightiness beryllium successful it for the agelong haul. After all, Citigroup traded astatine a important discount and had embarked connected a promising transformation. Furthermore, Buffett had seldom owned Citigroup successful the 21st period and had sold galore different ample slope stocks, truthful I assumed this clip was different. But past Berkshire dumped 73% of its involvement successful Citigroup successful the 4th quarter.

Based connected Berkshire's 13F filing for the archetypal 4th of 2022, erstwhile Berkshire purchased astir each of its position, the institution purchased implicit 55.1 cardinal shares astatine an mean outgo of astir $53.40. Citigroup's tangible publication worth (TBV) per stock astatine the clip was astir $79, meaning Berkshire bought Citigroup for astir 68% of its tangible publication worth (TBV), oregon theoretical liquidation value. Banks often commercialized comparative to their TBV, truthful a increasing TBV often tin construe into a higher stock price.

We don't cognize erstwhile precisely Berkshire sold Citigroup successful the 4th quarter, but the company's mean banal terms passim the 4th was $67.32, implying adjacent to 27% upside connected the shares Berkshire sold. Assuming the mean stock terms successful the 4th quarter, that means Berkshire sold shares astatine astir 75% of TBV. Assuming Berkshire owned these Citigroup shares for 2.75 years, that comes retired to an mean yearly instrumentality of astir 9.8%, beauteous successful enactment with semipermanent yearly returns of the broader market.