Warren Buffett, the CEO of Berkshire Hathaway, has been selling significant portions of the company’s holdings, sending a strong warning to Wall Street. Over the past seven quarters, Buffett has been a decisive seller of equities.
According to SEC filings, this trend is set to continue for an eighth consecutive quarter. On September 24, Berkshire Hathaway disclosed selling approximately 21.56 million shares of Bank of America, which were worth about $862.7 million.
Since mid-July, Berkshire’s sales have totaled nearly $9 billion. The company’s position in BofA has reduced from over 1.03 billion shares to 814.35 million shares. One plausible explanation for this significant reduction is profit-taking.
Buffett expressed this sentiment during Berkshire’s annual shareholder meeting in early May. He anticipates higher corporate tax rates in the future, so locking in sizable unrealized gains now could be a strategic move that benefits investors in the long run.
Despite his long-term optimism for the U.S. economy and stock market, Buffett is known for his disciplined value investing approach.
Buffett’s equity sales signal caution
He often quotes, “Price is what you pay.
Value is what you get.”
He seems to be signaling that the market’s valuation is too high. Emotional and speculative investing behaviors drive it. The S&P 500’s Shiller price-to-earnings ratio stands at nearly 37.
This is significantly higher than its historical average. Similar high valuations have preceded major downturns. Buffett warned of “casino-like behavior” on Wall Street in his latest annual letter to shareholders.
This is fueled by historically low interest rates and easy access to information. It stands in sharp contrast to his long-term, value-centric approach. While Buffett remains an unwavering optimist regarding the long-term prospects of the U.S. economy, his recent actions suggest caution in the face of current valuations.
We’ll likely continue to see Berkshire Hathaway trim its positions until the market offers more attractive opportunities. For investors, Buffett’s moves might serve as a sobering reminder. It highlights the importance of valuation and patience in investing.
