At 94 years old, Warren Buffett remains perhaps the most-watched investor in the world. Every decision the value investing legend makes is carefully studied, often to determine his thoughts about the broader market and stock valuations.
This year has seen Buffett appear to turn more bearish than in any past period, with Berkshire Hathaway selling a net amount of $127 billion of stock in just the first three quarters.
What is Buffett selling, what is he buying and why does the Oracle of Omaha suddenly seem to doubt the stock market?
Buffett Sells Long-time Berkshire Holdings
One of the most surprising and intriguing decisions made by Buffett over the last year is selling off a substantial part of Berkshire’s stake in Apple.
Once described by Buffett as being better than any other business Berkshire owned, Apple remains the company’s largest holding. Buffett has, however, sold off more than 600 million shares of Apple so far this year.
Another company that has found itself on Berkshire’s chopping block is Bank of America. Since July, Buffett has liquidated more than 260 million shares of the financial major, equating to a little over a quarter of Berkshire’s total position. What’s perhaps most unusual about this selloff is the sheer frequency of transactions. Berkshire has reported Bank of America sales 15 separate times this year so far.
Even Chevron, a time-tested oil stock that Buffett is known to favor heavily, hasn’t been totally immune to his selling tendencies in 2024. Throughout Q1 and Q2, Berkshire sold just under 7.5 million Chevron shares.
It’s worth noting, though, that this was far less aggressive than Buffett’s slashing of the Apple and Bank of America positions. Berkshire still holds about 119 million shares in the oil company, and the selling activity earlier this year represented well under 10% of the total stake.
Cumulatively, all of this selling has bulked up Berkshire’s cash reserve enormously. With the most recent sales, the company boosted its cash holdings to over $325 billion. With this reserve, Buffett will have ample cash to deploy if and when attractive investment opportunities appear.
What Is Buffett Still Buying?
Interestingly, one asset that Buffett is buying hand over fist is the US Treasury Bill. Even before the latest round of converting investments to cash, Berkshire Hathaway owned more short-term Treasury Bills than the US Federal Reserve. This is something of a natural place to park such large sums of cash, especially with interest rates currently allowing Berkshire to draw a reasonable rate of return on its cash holdings.
In general, however, Buffett doesn’t seem to be finding good opportunities in the stock market at the moment. This could point to Buffett’s suspected opinion that stocks are simply too expensive today.
The Buffett Indicator, a ratio between total market capitalization and overall GDP that is known to be one of his favorite measures of total stock market valuation, is currently running at over 200%. At such levels, it’s highly likely that stocks as a whole could be significantly overvalued.
While there are always values to be found in any market, Berkshire’s sheer scale effectively restricts it to making investments in large-cap companies.
Perhaps even more telling is the fact that Buffett refrained from share buybacks at Berkshire during Q3. Since 2018, the company has been buying back its own shares aggressively, using repurchase authorizations as a method for returning cash to shareholders without issuing a dividend.
Q3 was the first time since 2018, though, that Berkshire didn’t decide to buy back its own shares. This could suggest that Buffett no longer believes his own company’s stock to be undervalued, especially in light of Berkshire shares having gained nearly 30% YTD.
All of this said, Buffett hasn’t been sitting completely on the sidelines this year. In June, for instance, Berkshire went on a buying spree in Occidental Petroleum, arguably Buffett’s favorite energy stock.
Over the course of just over a week, Berkshire increased its holdings in Occidental by over 7 million shares. Buffett also bought up over 30% of SiriusXM in what likely originated as an arbitrage deal.
What Is Warren Buffett Buying and Selling Now?
Buffett has been buying Treasury bills and Occidental Petroleum while selling Bank of America and Apple, suggesting a more bearish outlook.
Though Buffett’s selling activity may seem drastic, it actually fits in reasonably well with his value investing background.
By almost all metrics, stocks are extremely expensive at the moment. Apple, the recipient of the biggest cutbacks at Berkshire, currently trades at 29.9x forward earnings and 8.7x sales.
Bank of America, though certainly not priced as high, is singularly susceptible to changes in interest rates and may underperform as the Federal Reserve continues to lower its baseline rates.
While Buffett has said that his favorite holding period for a stock is forever, selling when stocks are notably overvalued is a part of traditional value investing.
Buffett’s mentor and the intellectual father of value investing, Benjamin Graham, advocated selling when market volatility caused stocks to trade above their intrinsic value. This may well be what Buffett is doing now, as the cash he pulls from Berkshire’s stock positions today could be deployed for better returns if and when stock prices become more attractive.
This same thought process likely explains Buffett’s newfound reluctance to buy more Berkshire Hathaway shares. Up to now, the scale of Berkshire’s buybacks suggests that Buffett has viewed the stock as undervalued. With interest rates high and Berkshire shares soaring over the last year, though, the company has likely become closer to fairly valued.
As such, it may not make as much sense for Buffett to put cash into share buybacks that could eventually be used to buy stocks at more attractive valuations.
Taking everything into account, it seems clear that Buffett’s selling is a referendum on stock valuations as a whole. This is perhaps unsurprising, as a combination of macroeconomic factors and enthusiasm for technological developments like AI have come together to make stocks historically expensive.
Buffett has often said that investors have the advantage of only having to swing at pitches they like. The wait for such a pitch may be a long one, but Berkshire Hathaway has put itself in a strong position to make massive investments if and when the ball begins to come its way again.
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