Prediction: Warren Buffett's Successor, Greg Abel, Will Dispose of One of Berkshire Hathaway's Largest Holdings
Key Points
Warren Buffett retired as CEO of Berkshire Hathaway on Dec. 31, passing the oversight of the company’s $364 billion investment portfolio to Greg Abel.
Abel has wasted little time in his new role, jettisoning 16 companies in the first quarter.
Collectively, Buffett and Abel have sold nearly 550 million shares of a core holding since June 30, 2024, and its now-premium valuation may be the catalyst that sends it packing.
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It's the dawn of a new era for one of Wall Street's trillion-dollar businesses. With Warren Buffett retiring as CEO of Berkshire Hathaway (NYSE:BRKA)(NYSE:BRKB) on Dec. 31, his longtime understudy, Greg Abel, is now overseeing the company's day-to-day operations and its closely watched $364 billion investment portfolio.
Even though Abel wasted little time imprinting his mark on Berkshire's portfolio -- he exited 16 positions in the first quarter -- he and the Oracle of Omaha have a similar investment approach. Most importantly, Abel and Buffett are unwavering in their pursuit of value. This is what makes it increasingly likely that one of Berkshire's largest holdings, Bank of America (NYSE:BAC), is sent packing.
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Warren Buffett retired as Berkshire's CEO on Dec. 31. Image source: The Motley Fool.
Warren Buffett's investment in BofA has been exceptionally profitable
In Buffett's more than half a century at the helm, he made a habit of pouncing during periods of panic. In the years after the financial crisis, Buffett helped fortify Bank of America's balance sheet. In return, Berkshire Hathaway received $5 billion in BofA preferred stock, yielding 6% annually, in August 2011.
But $300 million in annual dividend income wasn't the prize of this arrangement. Berkshire also received warrants to purchase up to 700 million shares of Bank of America stock at $7.14 per share, which were eventually exercised in the summer of 2017. Buffett's timely investment has made his company a pretty penny.
The beauty of financial stocks like BofA is that they benefit in lockstep with the economy. Even though recessions are inevitable, periods of economic growth last considerably longer than downturns.
Bank of America is also the most interest-sensitive of America's large banks. When the Federal Reserve was aggressively hiking interest rates from March 2022 to July 2023, arguably no money-center bank benefited more than BofA.
Image source: Getty Images.
Bank of America is likely getting the boot from Berkshire's portfolio
But over the last eight quarters, Berkshire's bosses have been relentless sellers of Bank of America. Since June 30, 2024, Buffett and Abel have sold nearly 549.5 million shares of BofA, equating to 53% of Berkshire's stake.
Bank of America's valuation is probably the No. 1 catalyst behind this selling activity. When the Oracle of Omaha purchased BofA's preferred stock, the company's common stock was trading at a 62% discount to its book value. As of the closing bell on Sept. 11, BofA's shares were trading at a 59% premium to book value. Historically, bank stocks have performed poorly as they've approached a 100% premium to book value.
BAC Price to Book Value data by YCharts
Furthermore, Bank of America's interest-rate sensitivity worked against the company when the Fed cut interest rates six times between September 2024 and December 2025. Although BofA's interest income is still well above where it was five years ago, the central bank's rate-easing cycle disproportionately hurt it, relative to other money-center banks.
Lastly, we've seen no indication from Berkshire's current or former bosses that Bank of America is viewed as a core holding. In 2024, Buffett outlined eight stocks he thought of as "indefinite" holdings in his annual letter to shareholders. This included Coca-Cola (NYSE:KO), American Express (NYSE:AXP), Occidental Petroleum (NYSE:OXY), and the five Japanese trading houses.
Meanwhile, Abel's first annual letter to shareholders included Apple (NASDAQ:AAPL) and Moody's (NYSE:MCO) as holdings that can "compound over decades." Bank of America's exclusion as an indefinite or compound holding points to it being shown the door.
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Bank of America is an advertising partner of Motley Fool Money. American Express is an advertising partner of Motley Fool Money. Sean Williams has positions in Bank of America. The Motley Fool has positions in and recommends American Express, Apple, Berkshire Hathaway, and Moody's. The Motley Fool recommends Occidental Petroleum. The Motley Fool has a disclosure policy.
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