Why BYD Stock Plunged 8%

Why BYD Stock Plunged 8%
Why BYD Stock Plunged 8%

The share of the Chinese electric car manufacturer was on an already largely red trading day BYD (WKN: A0M4W9) was a particularly negative highlight on Wednesday. Because it ended the trading day down 7.91%. In the meantime, BYD shares were even down by double digits.

The reason for the BYD share crash is quickly found: the well-known investor Warren Buffett, who first built up a position in the electric car manufacturer 14 years ago, has reduced his stake.

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What Does Warren Buffett’s Selling Really Mean for BYD Stock, and How Should Investors Respond?

Is Warren Buffett Selling All BYD Stock?

The magnitude of the sale is rather homeopathic: Warren Buffett’s holding company Berkshire Hathaway (WKN: 854075, A0YJQ2) reduced its stake in the electric-car maker from 20.04% to 19.92% — or, if you’re less picky about rounding, from 20% to 20%. Nevertheless, this transaction set the speculative machinery in motion.

Because Berkshire Hathaway hasn’t sold a single BYD share in 14 years. Some investors are now interpreting this mini sale as an indication that Warren Buffett could cash in on this investment.

The reasons for the sale? Pure speculation!

The star investor would certainly have enough reasons to sell BYD shares. Because Warren Buffett has been invested in the electric car manufacturer for many years. His $232 million initial investment has turned into a roughly $7 billion treasure, as fortune calculates. One or the other of us would take profits, right?

BYD stock’s high valuation — a trailing price-to-earnings (P/E) ratio of 168 — could also play a role. Warren Buffett may also be concerned about tensions between China and the United States and whether the Asian country might stop allowing foreign investors into its own companies for some time. Perhaps the star investor also sees operational headwinds at the electric car manufacturer itself.

Whatever the reason, a negative view of Warren Buffett — or even the prospect of one — carries a lot of weight in the stock market. That’s why BYD stock plummeted so significantly on Wednesday.

BYD Stock: Don’t Panic!

For BYD shareholders there is still no reason to panic.

Firstly, this transaction could also be a very ordinary and unexciting diversification of Berkshire Hathaway’s portfolio from a risk perspective. Although Warren Buffett is a long-term investor, he does buy and sell smaller and larger blocks of shares in the companies in which he has an interest.

Secondly, for BYD investors it should be more important how the company develops itself and not its shareholder structure. Operationally, the electric car manufacturer continues to deliver strong growth. Thanks to its position as a battery manufacturer and lithium mining investor, BYD has its destiny firmly in its own hands.

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The article is in German

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