Warren Buffett, the renowned CEO of Berkshire Hathaway, has been a net seller of equities for seven consecutive quarters. This selling activity, totaling substantial net-equity sales, spans from Oct. 1, 2022, to June 30, 2024.
With Berkshire Hathaway set to deliver its third-quarter operating results shortly, there is a high probability that this trend will continue for an eighth consecutive quarter. Buffett’s selling spree is viewed as a foreshadowing of potential trouble for the stock market. This aligns with his value investment philosophy, where he prefers to purchase investments when their valuations are fair and appealing.
Currently, value is becoming increasingly difficult to find, prompting Buffett to pare down Berkshire Hathaway’s portfolio and increase the company’s cash position, preparing to take advantage of price dislocations during potential market downturns. The Shiller price-to-earnings (P/E) ratio, which accounts for average inflation-adjusted earnings from the past decade, is a useful measure to understand the current market valuation.
Buffett’s signals for cautious investing
As of late October, the Shiller P/E ratio for the S&P 500 stood at 37.27, a historically high figure. Over the last 153 years, high Shiller P/E ratios have often preceded substantial market corrections. Despite his substantial selling, Buffett has not resorted to short-selling securities or buying put options.
This restraint suggests that while he is cautious, he continues to have faith in the long-term resilience of the American economy and stock market. The U.S. economy has consistently rebounded from downturns, and this historical perspective underscores the value of patience and long-term investment. Buffett’s recent actions, although cautious, imply a preparation for future opportunities rather than an outright pessimism about the market’s long-term prospects.
His continued management of a sizable $314 billion portfolio at Berkshire Hathaway aligns with his belief in the enduring growth of the U.S. economy and stock market. In summary, Warren Buffett’s recent stock-selling spree sends a clear message about his short-term market expectations but also reflects his long-standing confidence in the long-term growth potential of the U.S. economy. For investors, this duality serves as a reminder of the importance of patience and strategic positioning during times of market uncertainty.
