Warren Buffett dumped Goldman Sachs, JPMorgan, and other bank stocks last year. They’ve now surged to record highs, meaning the investor left billions on the table.

• Warren Buffett might regret dumping bank stocks given their positive outlook.
• Buffett's Berkshire Hathaway sold Goldman Sachs, JPMorgan, and most of Wells Fargo.
• Bank stocks have hit new highs and stand to gain as the economy reopens.
• See more stories on Insider's business page.
  

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Warren Buffett might be kicking himself for selling the banks, as their prices have rebounded to pre-pandemic levels and several are flirting with fresh highs.

The famed investor's company, Berkshire Hathaway, sold its stakes in Goldman Sachs, JPMorgan, M&T Bank, PNC Financial, and Synchrony Financial during the past five quarters. It virtually eliminated its historic Wells Fargo position as well, and trimmed its bets on US Bancorp and BNY Mellon. It only added to a single bank holding in the period, Bank of America.

Buffett dumped the banks because he feared Berkshire was overexposed to the sector and could suffer if the pandemic worsened, he said at Berkshire's recent shareholder meeting. "We overall didn't want as much in banks as we had," he said.

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The investor also pointed out that the banks have the Federal Reserve as a safety net if the financial system freezes up, but Berkshire doesn't. "It's up to us take care of ourselves," he said.

Buffett may be sleeping more soundly, but he missed out on significant gains. For example, Berkshire's Goldman stake was worth $2.8 billion at the end of 2019; it would have fetched $4.3 billion today. JPMorgan, PNC, and Synchrony are also trading at record levels, while Wells Fargo and M&T have rallied to 15-month highs.

Moreover, Buffett didn't sell the banks and buy something better instead. He has struggled to find compelling uses for Berkshire's cash reserves, which exceeded $140 billion at the last count. His company sold about $13 billion of stock on a net basis over the past five quarters, and only spent about $4 billion on acquisitions. In fact, Berkshire's biggest splurge in 2020 was spending $25 billion repurchasing its own stock.

Read more: Warren Buffett slammed Robinhood, touted tech stocks, and questioned his own holdings at Berkshire Hathaway's annual meeting. 6 experts explain why.

Buffett risks missing out on further gains too. Bank stocks stand to benefit from the US economy reopening, higher interest rates, a booming stock market, and regulators approving bigger dividends and buybacks in the coming months.

In short, Buffett sold his bank stocks well below their current prices, won't benefit from any further gains they make in the coming months, and has been earning a meager return on the sale proceeds. His saving grace is Bank of America - Berkshire's 1 billion shares in the lender have surged in value by 18% since the start of last year to $42 billion today.