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3 Top Lessons Learned from Buffett's 2020 Portfolio Moves

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Welcome to Episode #214 of the Value Investor Podcast

Every week, Tracey Ryniec, the editor of Zacks Value Investor portfolio, shares some of her top value investing tips and stock picks.

Recently, Warren Buffett’s Berkshire Hathaway filed its 13-F form for the third quarter which, under SEC regulation, must include the stocks it had bought and sold in the quarter.

This quarter’s 13-F had some surprises.

Berkshire reduced its position in the financials again, specifically the large banks, while taking 4 new positions in big cap pharmaceutical companies.

After selling out of its airline stocks earlier in the year, and with these recent moves, Buffett has remade the Berkshire portfolio as we head into 2021.

Should you do the same?

Three Top Lessons Learned from Buffett’s 2020 Portfolio Moves

1.       If an industry or sector is heading into hard times, there’s nothing wrong with just getting out completely and redeploying into other industries. Berkshire did this at the start of the pandemic in the spring when he sold all of his airline stocks including Southwest (LUV - Free Report) .

The airline business is terrible right now and not expected to recover to pre-COVID levels for several years.

2.       Don’t get overweight in one sector. A few years ago, Berkshire had 55% of the portfolio in financials. Since then, Buffett has been selling.

In the third quarter, he sold nearly all of the position in JPMorgan Chase (JPM - Free Report) and most of the Wells Fargo (WFC - Free Report) shares. Berkshire has owned Wells Fargo for almost 20 years. But businesses, and management, change.

Additionally, Apple (AAPL - Free Report) , Berkshire’s largest stock holding, continues to become a bigger chunk of the portfolio as the shares soar. Berkshire sold 3% of the position in the third quarter but it still makes up 47.8% of the portfolio. Be careful allowing any single stock to become too dominant in a portfolio. Even Apple.

3.       There are still classic value stocks out there to buy even as stocks hit new highs. Why not rotate money into those?

Berkshire jumped into 4 big cap drug makers in the third quarter, including AbbVie (ABBV - Free Report) which recently merged with Botox maker Allergan. It’s cheap, with a forward P/E of just 9.9 and it’s yielding a juicy 5% dividend.

What else do you need to know about adopting Buffett’s portfolio moves to suit your own portfolio?

Find out on this week’s podcast.

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