Warren Buffett’s investment vehicle, Berkshire Hathaway, has been stockpiling cash. During Q2 2024, its cash reserves were boosted after it sold approximately 50% of the company’s holding in Apple. Given that Buffett’s the chairman, chief executive and largest shareholder in Berkshire, I’m sure he approved the sale.
When asked to explain the thinking behind the disposal, he was a little vague but hinted that he thought taxes on capital gains might be increased.
Some have interpreted the move as a sign that the billionaire’s expecting a stock market crash.
Whatever his motives, I’ve also decided to sell one of my shareholdings. Admittedly, it’s not going to raise as much money as Berkshire’s sale of Apple, but it’s still significant to me.
A different approach
However, unlike the American, I plan to reinvest the proceeds in the stock market.
That’s because I believe — over an extended period — shares will outperform cash.
I’m pretty sure history will be repeated, meaning there’ll be many market ‘corrections’ over the remainder of my investing lifetime.
But I’m not clever enough to know when these will occur, so I always take a long-term view and try to ignore the speculation.
Time to move on
However, the time has come to part company with my Anglo American (LSE:AAL) shares.
I bought them just over two years ago when the share price was around £36. Today (23 October), they change hands for £23.50, meaning I’m sitting on a 35% loss. Ouch.
Some of the disappointment has been eased by the dividends that I’ve received. Since September 2022, the company’s paid $2.62 a share (£2.01 at current exchange rates) to shareholders.
However, I’ve fallen into the trap known as ‘anchoring’. This is where investors assume a stock’s going to return to its previous level.
Psychologists have found that the pain of losing is twice as powerful as the pleasure experienced when winning. I’m certain this loss-aversion has also contributed to my poor decision-making.
Possible buyer
In May, I thought I’d get most of my money back when BHP made a takeover approach.
But Anglo American’s directors rejected a deal arguing that the final offer of £38.6bn — its market cap is now £31.8bn — undervalued the company.
Subsequently, they released their own plan intended to maximise returns to shareholders. Their ideas include separately listing the group’s De Beers diamond business and disposing of its interests in steelmaking coal, nickel and platinum.
But this will take time. And leaves a void that’s been filled with speculation that BHP may come back again. Others suggest that Glencore or Rio Tinto might be interested in buying Anglo American.
However, the possibility of a takeover isn’t a sensible basis for holding on to an investment.
Worries
My biggest concern is that the company’s financial performance continues to be disappointing.
Although copper prices have risen 65% over the past five years, the scaling back of production means earnings are lower than they were in 2019.
And I fear metals prices may come under pressure as China’s economy slows and sales of electric vehicles fall.
I’ve therefore decided that it’s time to cut my losses.
As Warren Buffett advises: “Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.”
