When the world’s most successful investor trades stocks, the markets take a close look. They run the risk of reading too much into it. But there is still a lot to learn.
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It is the seventh quarter in a row in which Warren Buffett has sold more shares than he has bought. Most recently, Bank of America (Bofa) was the latest to suffer, according to a statement to the US Securities and Exchange Commission (SEC). Berkshire Hathaway sold Bofa positions worth around 760 million US dollars. These sales reduced Berkshire Hathaway’s stake to around eleven percent. Warren Buffett had already reduced his once second-largest position by 34 million positions in July.
In addition to the shares in the investment bank, he also reduced his positions in other companies. Berkshire gradually reduced its stake in Chevron, one of the largest oil companies in the world. The stake in General Motors (GM), one of the largest automobile manufacturers in the USA, was also reduced.
In the first two quarters of the year, Buffett’s company sold off nearly half of its Apple shares. The Omaha, Nebraska-based conglomerate said in its earnings release that its stake in the iPhone maker was valued at $84.2 billion at the end of the second quarter, suggesting the “Oracle of Omaha” sold just over 49 percent of the technology stake.
Is Buffet expecting a crisis?
In total, the holding company sold shares worth more than 75 billion US dollars (around 68.68 billion euros) in the first half of the year. All of this has led to a significant increase in Berkshire Hathaway’s cash reserves. In the last quarter, they grew to a record amount of 276.9 billion US dollars.
The media and investors are now trying to understand what is going on. Some suspect that Buffett is preparing for a recession. They are reminded of the massive selling ahead of 2022 – the worst year for the markets since the 2008 financial crisis. Is Buffett expecting another crisis?
It would be wrong to panic now. Buffett has good reasons that have nothing to do with the company itself. “We would (the cash, Editor’s note:“I would love to spend my money,” Buffett said at Berkshire’s annual general meeting in early May. However, he would not spend his cash reserves unless he could assume that the investment would be low-risk and would yield good returns.
The stock market mogul is always looking for good deals. But they are hard to find in times like these – with overheated markets and expensive stocks. Warren Buffett’s favorite indicator for the stock market suggests that stock valuations are too high after a summer of bull market sentiment on Wall Street. The “Buffett Indicator,” as it is called by followers of the Oracle of Omaha, is now at a “significantly overvalued” level. This indicator divides the Wilshire 5000 index (which tracks the entire stock market) by the annual GDP of the USA.
Or just diversification?
Another reason could simply be that he is tactically restructuring his portfolio to be less dependent on a single position such as Apple. It is diversification, as he always preaches. Apple is still Berkshire Hathaway’s largest position. Investors should therefore not panic, but simply watch the grandmaster of the stock market at work and learn.
Source: Stern
