Finimize - ✂️ Buffett's latest move

What’s going on here?

Warren Buffett’s Berkshire Hathaway sold about $1.5 billion of Bank of America shares, trimming its stake.

What does this mean?

Berkshire still owns about 999 million shares – a stash that’s valued at over $42 billion. And the conglomerate is nowhere near saying goodbye to Buffett’s favorite bank stock: with such a small adjustment, it’s more likely just tweaking the asset mix. See, the Berkshire and Bank of America love affair goes way back. Buffett’s firm bought its first $5 billion stake in 2011, in the still-unstable days after the global financial crisis, and it’s been adding to its pile ever since – until now, that is.

Why should I care?

Zooming in: It’s not you, it’s Berkshire.

Buffett’s firm sold a slice of another major holding – Apple – earlier this year. But the iPhone maker still makes up 40% of its US-listed assets, thanks in part to a strong rally over the past few months. The problem for Berkshire is that it’s not finding much to buy. See, today’s lofty share valuations have meant big-cap stocks are priced too high to meet Buffett’s strict criteria. Meanwhile, smaller companies just won’t cut it, even if they look cheap: they can’t offer a stake hefty enough for such a big fish. So Berkshire’s left sitting on a huge $190 billion cash pile. Most of that is held in short-term government bonds, earning around $10 billion a year – not bad for a risk-free investment.

The bigger picture: Money out, money in.

Higher interest rates empty most folks’ pockets as mortgage payments and borrowing costs jump. And when groceries and other stuff become more expensive, that just adds to the pressure. But for investors, a more than 5% return on cash is pretty tempting when inflation is around 2% to 3%. That’s one reason for the record flows into money market funds, which offer those higher interest rates.

What’s going on here?

Activist hedge fund Elliott Investment Management has brewed up a hefty stake in Starbucks, aiming to perk up the company’s share price decline before it gets too bitter.

What does this mean?

Activist funds buy stakes in firms and push for change to pull up share prices. And Elliott’s gone and ordered up a venti serving of Starbucks, just as the world’s biggest coffee chain is facing a steaming hot dilemma. Once the go-to place for anyone with a MacBook writing a novel, Starbucks now relies heavily on to-go orders. And after reporting a sharp drop in visits and weaker-than-expected profit in the first quarter, the coffee retailer ground down its forecast for the second time this year, causing a steep stock selloff. Now, investors are hyped to see what Elliott can do – and that helped the stock initially froth up 7%.

Why should I care?

Zooming out: Tall orders.

The activist playbook generally involves selling off bits of the business, giving execs the boot, and ripping up the existing strategy in favor of something new. And Elliott’s one of the best in this biz: when it steps in, a stock typically jolts higher and stays that way for at least a year. So this could be good for Starbucks. It doesn’t always go down smoothly, though. These outside experts sometimes get flak for chasing short-term wins over long-term stability and growth.

The bigger picture: Sour aftertastes.

Like value investors, activists tend to zero in on companies when they think a stock’s price is way below what it’s worth. And some big brands are in their sights this year: Nike, Estée Lauder, McDonald’s, and UPS – to name a few. But if you’re chasing this industry’s potential stock targets, you’ll want to watch your step: Goldman Sachs has found that shares bought by activists generally tend to head south after about six months.