Warren Buffett Just Sold This Stock — But I Think He’s 100% Wrong.

Recently we looked at Berkshire Hathawayhis (BRK.A 0.91%) (BRK.B 0.83%) updated the stock portfolio when the company filed its last quarterly disclosure. A few of the moves were already well known, like selling about half of them Apple investment and the addition of more shares of Occidental Petroleum.

However, one move in particular that surprised me was the sale of part of Berkshire’s investment in the Capital One Financial (COF 1.79%). Berkshire sold about 2.65 million shares of Capital One, a 21% reduction in its investment. Even after the sale, Berkshire still owns about $1.4 billion of the bank’s stock, so it’s not as if Warren Buffett and his team have completely lost faith in the business. But it still surprised me, and not only because Berkshire first added Capital One to its portfolio about a year ago.

I’m often aligned with Buffett’s moves. For example, I think the recent sale of Apple was a smart idea, for several reasons. But I have to say I disagree with him here. In fact, Capital One is at the top of my list of attractive bank stocks to buy right now.

Why I’m a fan of Capital One

There are a few reasons why I’m a fan of Capital One. To begin with, it is a very profitable bank. Not only is Capital One a credit card-focused bank, but it also focuses on products like online checking and savings accounts more than other major US banks. This gives it an excellent cost structure. In fact, Capital One has a net interest margin of 6.70% as of the second quarter – for context, Bank of AmericaIts NIM during the same period was 2.41%.

I’m also a big believer in the pending acquisition by Capital One Discover Financial Services. This offering adds hundreds of millions of credit card accounts to Capital One’s portfolio, and most of the banks’ credit card products are complementary to each other, meaning there is little overlap.

Not only that, but after the transaction is completed, Capital One will have its own payment network. It can use the Discover network to process much of its debit and credit card volume and avoid paying interchange fees to Visa and MasterCard. In addition, owning its payment network creates a lot of future possibilities, such as becoming a processor for other banks’ credit card products.

In addition, Capital One is a cheap bank stock right now. It trades about 10% below its book value (most likely due to recession fears and the credit card business), but that’s remarkably cheap compared to most peers.

Why did Buffett sell?

One important thing to note is that we have absolutely no idea why Berkshire decided to sell some of its Capital One stock. We don’t even know if the move was initiated by Warren Buffett himself or one of his investment managers.

That said, there are a few potential reasons I can think of. First, most of Buffett’s stock moves recently seem to be in the direction of taking risk off the table, and that could certainly be the case here. After all, credit card loans are inherently riskier than, say, mortgages or car loans if we hit hard times. Additionally, Berkshire had a roughly 37% gain on its Capital One investment in just over a year, so this could take some of its profits off the table.

Regardless of Buffett’s reason (and I’m sure he has one), it’s important to remember that every investor has different goals and risk tolerance. And to me, Capital One’s risk-reward dynamic shows great right now.