Warren Buffett 4 TMF May 2014
When Warren Buffett buys or sells stocks, investors watch carefully. And for one good reason: The billionaire investor’s track record of success. As chairman of Berkshire Hathaway, Buffett has delivered a compounded annual gain of more than 19% over 57 years, surpassing that of the S&P 500 index. The champion investor and his team have done this by choosing top quality stocks trading for reasonable prices.
In the most recent quarter, Buffett sold a number of stocks, in some cases completely closing out positions and in other cases just reducing his position. And a company on this list was one that, after years of stock market gains, completed a stock split last year.
I’m talking about e-commerce and cloud computing giant Amazon (NASDAQ: AMZN). Buffett didn’t eliminate it from the portfolio, but instead reduced his position by 5%. Should you follow in his footsteps?
Amazon’s stock split
So, first, let’s talk about the stock split. These operations, often launched following a period of gains, are done to bring down the price of each individual share — allowing a broader range of investors to invest in the stock (without having to opt for fractional shares). A company does this by issuing more shares to current holders, so the total market value of the company remains the same.
Amazon completed such an operation after its share price soared past $3,000. Today, the stock trades at nearly $150, after a 77% gain this year. A stock split generally is a sign a company has been doing well and management expects it has what it takes to continue advancing.
Now, let’s consider Amazon’s recent story. The e-commerce powerhouse struggled last year amid higher interest rates — which drove up costs and weighed on the customer’s wallet. And Amazon faced some internal challenges too, like overcapacity across its newly expanded fulfillment network.
Customers flocked to Amazon earlier during the pandemic, but the economic environment that followed hurt demand. As a result, Amazon last year reported its first loss in nearly a decade.
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