Warren Buffett’s Selling Spree: Insights into the “Oracle of Omaha’s” Caution Amid Market Highs
Every year, about 40,000 fans make their way to Omaha to listen to Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) CEO Warren Buffett discuss stocks and the economy. Investors are drawn to this gathering due to Buffett’s impressive record of outperforming the S&P 500 (SNPINDEX: ^GSPC) since he took the reins 60 years ago.
While the S&P 500 has achieved a remarkable total return of around 40,000% through December 26, Buffett’s leadership has propelled Class A shares (BRK.A) to an eye-popping gain of 5,515,517%. Tracking Buffett’s trading through Berkshire Hathaway’s quarterly Form 13Fs has proven profitable for many investors over the years.
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As the new year approaches, though, Wall Street’s “Oracle” presents investors with 166 billion reasons to be cautious.
Berkshire Hathaway CEO Warren Buffett. Image source: The Motley Fool.
Buffett’s Caution: Two Years of Stock Selling
“Be fearful when others are greedy, and greedy when others are fearful” is one of Buffett’s most quoted sayings. Despite his encouraging messages about investing in America, Buffett, known for his value investing approach, has exhibited caution by waiting for the right market opportunities.
His selling spree over the past two years, up to September 30, is telling. Buffett and his team sold more stocks than they purchased for eight consecutive quarters:
- Q4 2022: $14.64 billion in net equity sales
- Q1 2023: $10.41 billion
- Q2 2023: $7.981 billion
- Q3 2023: $5.253 billion
- Q4 2023: $0.525 billion
- Q1 2024: $17.281 billion
- Q2 2024: $75.536 billion
- Q3 2024: $34.592 billion
In total, this equals $166.22 billion in net stock sales over the two years, significantly boosting Berkshire Hathaway’s cash reserves, which now exceed $325 billion. Such behavior is unexpected for one of Wall Street’s most optimistic figures.
High Valuations and Buffett’s Search for Value
During the annual shareholder meeting in May, Buffett hinted that some stock sales might be for tax minimization. With notable gains from Apple and Bank of America (NYSE: BAC), locking in profits appears prudent, especially since corporate taxes are at their lowest since 1939. However, the persistent selling could also be due to historically high stock valuations, making it tough for Buffett to find appealing investments.
Warren Buffett Indicator soared to an all-time high of 209% 🚨 For context, it peaked at 140% before the Dot Com Bubble Burst pic.twitter.com/bBiqziD0iG
— Barchart (@Barchart) December 9, 2024
Back in 2001, Buffett described the market cap-to-GDP ratio, later termed the “Buffett Indicator,” as a key measure of stock valuations. In December 2024, this measure hit over 209%, a level not seen before.
Historically, high readings of this indicator have often preceded declines in the stock market. Prior peaks were recorded at 144% before the dot-com crash, 107% before the financial crisis, and 195% on the verge of the 2022 bear market, leading to declines in the S&P 500 ranging from 28% to 57%.
It’s clear that Buffett is taking profits as caution increases in a pricey market.
Image source: Getty Images.
Buffett’s Long-Term Outlook Remains Positive
Despite Buffett’s recent selling, his long-term investment philosophy has not wavered. He and his advisors, Todd Combs and Ted Weschler, are currently struggling to find compelling investment opportunities, but that doesn’t alter his belief in America’s economic growth.
The staggering 5,500,000% cumulative gain in Berkshire’s Class A shares since Buffett took charge underscores his value-focused strategy, which thrives in times of market volatility.
For instance, in 2011, Buffett invested $5 billion in Bank of America (BofA) to stabilize its financial position. This investment has earned significant returns thanks to stock warrants he was granted at a highly favorable strike price. Such moves highlight Buffett’s knack for seizing opportunities during tough times.
While current market conditions may not present obvious bargains, Buffett’s history demonstrates that he will eventually deploy Berkshire’s substantial cash reserves when the right chances arise.
Recalling Buffett’s 2009 letter to shareholders, he succinctly noted: “Big opportunities come infrequently. When it’s raining gold, reach for a bucket, not a thimble.”
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Bank of America is an advertising partner of Motley Fool Money. Sean Williams has positions in Bank of America. The Motley Fool has positions in and recommends Apple, Bank of America, and Berkshire Hathaway. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
