Warren Buffett's Second Reason to Sell: When You Can No Longer Trust Management
π― When Trust Breaks Down, the Investment Ends
For Warren Buffett, the core of investing is people. No matter how great a company's brand is, if management loses integrity, Buffett doesn't hesitate to sell.
"It doesn't matter how strong the brand is or how long Berkshire has owned the stock. If leadership becomes dishonest, careless, or starts to cut corners, Buffett has no problem cutting ties with that stock."
π¦ Real Example: Wells Fargo and 30 Years of Trust
The most representative case of Buffett selling due to management issues is Wells Fargo.
π A 30-Year Partnership
Buffett first bought Wells Fargo stock in 1990. He successfully held it for nearly 30 years. As one of America's largest banks, Wells Fargo boasted stable earnings and a powerful brandβa trustworthy investment for Buffett over the long term.
π In 2016, Everything Changed
In 2016, the fake account scandal exploded.
It was discovered that Wells Fargo employees had opened millions of fake accounts without customers' knowledge. The bank's aggressive sales targets had driven employees to commit fraud.
- Regulators kept uncovering new issues
- The CEO at the time was let go
- But the company never took real responsibility
Most importantly, a management team that would truly clean up the company's act never came in.
π When Trust Disappears
The reason Buffett sold Wells Fargo is simple. He could no longer trust the people running the bank.
β Remember This
- He didn't sell because banking was a bad business
- He didn't sell because Wells Fargo's brand had weakened
- He sold solely because he lost faith in management
Buffett started unwinding his massive Wells Fargo position in 2018.
π Buffett's Principle: He Doesn't Wait It Out
The most important thing we can learn from Buffett's actions is this:
Once trust is gone, he doesn't try to wait it out.
- He doesn't hope "things will improve when management changes"
- He doesn't wish "time will make people forget"
- He simply sells and moves on to the next idea
This is what a rational investor looks like.
π€ Lessons for Individual Investors
The Wells Fargo case offers important lessons for individual investors too.
Checklist: Management Trust Assessment
β Is management honest with shareholders? β Do they take genuine responsibility when mistakes happen? β Do they prioritize long-term company health over short-term results? β Are they building an ethical corporate culture?
If the answer to any of these is "no," you should seriously consider the trust issue, just like Buffett.
β¨ Key Takeaways
| Situation | Buffett's Decision |
|---|---|
| Strong brand but dishonest management | Sell |
| Long-held position but management cutting corners | Sell |
| Good business but untrustworthy leadership | Sell |
In Buffett's investment philosophy, management isn't just a considerationβit's central to the investment decision. No matter how good a company is, if untrustworthy people are running it, it's time to leave.