Warren Buffett Takes a Rare Step Back: No Stock Buys for the First Time in Six Years
Few moments in the financial calendar generate as much buzz among investors as the release of quarterly Form 13F filings. These documents, which detail the stock purchases and sales of major institutional investors, provide insights that can influence market trends significantly.
Form 13F filings are mandatory reports submitted to the Securities and Exchange Commission by institutional investors managing $100 million or more. They are due within 45 days after the end of a quarter, with the next deadline set for November 14. These forms capture a snapshot of the trades made by some of Wall Street’s leading figures in the previous quarter.
Berkshire Hathaway CEO Warren Buffett. Image source: The Motley Fool.
Warren Buffett, CEO of Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B), is often referred to as the “Oracle of Omaha” for his exceptional investment acumen. Over nearly six decades at the helm, Buffett has achieved an average annual return, including dividends, that nearly doubles that of the benchmark S&P 500 (SNPINDEX: ^GSPC).
This quarter, Wall Street is particularly interested in Berkshire’s 13F filing, which will come out after the market closes. Investors are primarily keen to identify any new stock picks from Buffett and his team, especially his key advisors Todd Combs and Ted Weschler. However, a significant headline emerges from the fact that Buffett has refrained from buying one stock he normally favors.
For the First Time in Over Six Years, Buffett Skips Purchasing His Preferred Stock
In the past eight quarters, from October 1, 2022, through September 30, 2024, Buffett has sold more equities than he bought, totaling around $166.2 billion in net sales. This pattern shines a spotlight on his selective buying approach.
What’s exceptionally striking is that Buffett’s go-to stock is conspicuously absent from Berkshire’s 13F. Instead, it emerges exclusively in the company’s quarterly operating figures, just before executive certifications.
This favored stock is—rather dramatically—none other than Berkshire Hathaway shares themselves.
Until mid-2018, Buffett was restricted from repurchasing Berkshire shares unless the stock was below 120% of its book value. Yet since then, changes to buyback rules have offered him more flexibility. With at least $30 billion in cash and equivalents on hand and his company seen as “cheap,” Buffett was given green light for buybacks.
For six years, Buffett bought back nearly $78 billion worth of Berkshire stock. However, for the quarter ending in September, he did not purchase any shares, marking a notable shift in strategy.
This change could have broader implications for Wall Street than the handful of stocks being bought by Buffett’s team.
Image source: Getty Images.
Buffett’s Concerns About High Valuations are Clear
Buffett’s decision to avoid buying back shares while holding a record cash reserve of $325 billion indicates that he views the current stock market as overvalued. The price-to-book ratio of Berkshire has reached levels not seen since 2008.
Importantly, the stock market overall is even pricier compared to Berkshire Hathaway.
Investors commonly use the price-to-earnings (P/E) ratio to judge whether a stock is fairly valued based on its earnings. However, this metric can falter in certain situations, particularly with growth stocks and during unforeseen events, such as pandemic shutdowns.
A more comprehensive valuation tool is the S&P 500’s Shiller P/E ratio, often regarded as the cyclically adjusted P/E ratio or CAPE ratio. Unlike the traditional P/E, the Shiller P/E considers average inflation-adjusted earnings from the previous decade, allowing for better comparisons over time.
S&P 500 Shiller CAPE Ratio data by YCharts.
As of November 11, the Shiller P/E ratio for the S&P 500 stood at 38.29, more than double the historical average dating back to January 1871. This reading marks the highest point during the current bull market and the third-highest ever recorded during a bull market.
There is some reasoning behind the prolonged higher Shiller P/E ratios in recent decades: Low interest rates have fueled borrowing and growth, leading to higher investor risk tolerance. The rise of the internet in the 1990s also reduced information barriers, encouraging investments.
However, extended high valuations often pose risks for Wall Street. In the last 153 years, there have only been six instances where the S&P 500’s Shiller P/E exceeded 30 in a bull market, typically followed by declines ranging from 20% to 89% from their peak.
While the Shiller P/E doesn’t indicate the timing of future declines, it reliably serves as a warning signal for impending market corrections.
Although the Shiller P/E may not be Buffett’s preferred tool for valuation, his current restraint in stock purchases underscores his perspective on the current market conditions and potential value difficulties. While Buffett remains optimistic about the U.S. economy and the stock market in the long run, his actions hint that investors may face uncertain times ahead.
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Sean Williams holds no positions in any mentioned stocks. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool maintains a disclosure policy.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
