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Warren Buffett's 3 Most Surprising Transactions in Q1

After trading closed last Friday, May 15, what was perhaps the most anticipated filing with the SEC was released. It was Form 13F that was made by Warren Buffett's company Berkshire Hathaway (WKN: 854075) (NASDAQOTH: WKN: A0YJQ2).

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Form 13F is a mandatory filing for companies with assets under management greater than $ 100 million, and it essentially provides a snapshot of what asset managers had in their portfolios at the end of the last quarter (in this case, March 31, 2020) held. Given that we have just witnessed the fastest bear market in history, Wall Street and investors were especially keen to see what the Oracle of Omaha did in the first quarter.

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While most of the purchases and sales were relatively nominal, three of the steps Buffett and his team took can be considered particularly surprising.

Buffett dramatically cuts his company's stake in Goldman Sachs

Probably the biggest transaction that stands out is the reduction in the stake of Goldman Sachs (NASDAQ: NASA) (NYSE: NYC) up 84% or nearly 10.1 million shares. This comes after Goldman sold more than 6 million shares for the fourth straight quarter.

There are two factors that make the Goldman Sachs investment bank sale particularly amazing. First of all, the first quarter results were all in all outstanding. Obviously, Buffett had no idea how well Goldman Sachs would do in the first quarter, but the company had its best-selling quarter in five years in Fixed Income, Currencies and Commodities and its second-best quarter in five years in equities.

The other factor is that Goldman Sachs is currently only trading at 75% of its book value, which is its lowest valuation relative to book value since 2011. Buffett has always been a huge fan of values, and Goldman Sachs appears to be offering this to long-term investors right now.

So why sell? One possibility is that Buffett simply wanted to take profits from his first position at Goldman Sachs earlier in the decade. Buffett's propensity to use recessions as a buying opportunity enabled him to make sizeable profits at Goldman Sachs.

The other possibility is that Buffett and / or his team fear an impending recession. This does not appear to be the case, as Buffett insisted repeatedly during the Berkshire annual meeting on May 2nd that he would never bet against America. However, it is very likely that merger and acquisition efforts, as well as corporate advisory needs, could decline significantly in the quarters ahead.

He also sells shares in JPMorgan Chase!

While Goldman Sachs' mammoth sale should grab the attention of most investors, what was even more terrifying to me was that Buffett had 1.8 million shares of JPMorgan Chase (NYSE: WKN: 850628). While this is only a 3% decrease in position compared to the previous quarter, this is surprising for a number of reasons.

First off, Buffett is a huge fan of banking stocks, and JPMorgan is typically one of the best stocks in the field. The bank offers one of the highest returns on assets of any major bank and has steadily increased retail banking (i.e. loans and deposits). With JPMorgan Chase's shares down nearly 40% of their value and getting pretty close to book value in March, I would have expected Buffett to buy, not sell.

Another important point to note is that Buffett greatly admires JPMorgan Chase CEO Jamie Dimon. The Omaha Oracle previously noted that he will read Dimon's annual letter to shareholders to get a good feel for what is really going on in the banking industry. Despite having health problems earlier this year, Dimon is back in office and it does not look like he will be leaving the bridge anytime soon.

JPMorgan Chase is also one of the few banks that has grown both digital and physical. The number of customers doing online transactions is growing steadily, but the company has also been ready to open dozens of new physical branches in regions of the country that the company considers to be underdeveloped.

Frankly, I'm more than amazed why Buffett cut his stake in JPMorgan Chase by 1.8 million shares.

Berkshire’s stake in Amazon is being reduced

The final surprise of the roughly 22 purchases and sales that Berkshire Hathaway made in the first quarter was the downsizing of the e-commerce giant Amazon (WKN: 906866). Although only 4,000 shares were sold, which represents only 0.7% of Berkshire Hathaway's 537,300 shares at the beginning of the year, the shocking fact that someone would sell Amazon now is shocking.

Within the retail sector, very few companies have benefited from the pandemic, while Amazon has been one of them. With Americans stuck at home for most of the past two months, they have shopped online as much as possible. This has made Amazon and its ecosystem of products a popular destination.

Specifically, we've seen how Prime membership has boosted Amazon's competitive advantage in retail. The revenue generated by Prime's more than 150 million members worldwide helps offset some of the thin retail profit margins, while providing a cushion for Amazon to continue undercutting competitors in brick and mortar retail.

Then there is Amazon's rapidly growing infrastructure cloud service, Amazon Web Services (AWS). Last quarter, AWS revenue grew 33% year over year to $ 10.2 billion, with AWS accounting for 13.5% of revenue compared to just 11% for full year 2018. Because margins in the cloud are much higher than any of Amazon's other businesses, the company can expect operating cash flow to explode in the years ahead as AWS grows in size.

Even if it's only 4,000 stocks, I suspect Buffett and his team will regret the sale in the first quarter.

The post Warren Buffett's 3 Most Surprising Transactions in Q1 appeared first on The Motley Fool Germany.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors.

Sean Williams has no position in any of the stocks mentioned. It has been translated so that our German readers can take part in the discussion.

The Motley Fool owns shares of and recommends Amazon and Berkshire Hathaway (B shares) and recommends the following options: long January 2021 $ 200 calls on Berkshire Hathaway (B shares), short January 2021 $ 200 puts on Berkshire Hathaway (B shares), short June 2020 $ 205 calls on Berkshire Hathaway (B shares), short January 2022 $ 1940 calls on Amazon, and long January 2022 $ 1920 calls on Amazon.

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