Warren Buffett’s investment firm Berkshire Hathaway has sold a significant amount of stocks in the first half of 2024. The company’s stock purchases totaled $4.3 billion, while its stock sales reached $97.1 billion. This means Berkshire’s net stock sales hit a record $93 billion through the June quarter.
Some investors see this as a warning sign that the current market is overvalued. Berkshire also has a record $277 billion in cash and U.S. Treasuries on its balance sheet. Additionally, Buffett only repurchased $345 million in Berkshire stock during the June quarter, his smallest allocation to stock buybacks in six years.
However, history shows that the S&P 500 has often delivered strong returns in the 12 months following years when Berkshire Hathaway was a net seller of stocks. Since 2010, the S&P 500 has returned a median of 19% during such periods. For example, in 2016, Berkshire’s net equity security sales totaled $12 billion.
Berkshire’s stock sales and market trends
The following year, the S&P 500 returned 19%. In 2020, Berkshire sold a net $7.4 billion in stocks.
The next year, the S&P 500 gained 18%. Given this data, the index has actually performed better after years in which Berkshire was a net seller. If this trend continues, the S&P 500 could potentially advance 19% in 2025.
It’s important to note that Berkshire Hathaway’s massive size limits the number of stocks that could significantly impact its bottom line. Buffett himself said, “There remain only a handful of companies in this country capable of truly moving the needle at Berkshire.”
Therefore, Buffett’s $93 billion warning may say more about Berkshire’s size than the overall market environment. While valuations are indeed elevated, with the S&P 500 trading at 21.4 times forward earnings, this alone is not a reason to avoid the market entirely or sell large amounts of stock.
Instead, investors should view Buffett’s actions as a reminder to carefully consider valuations when buying stocks in the current market. As always, past performance does not guarantee future results, but history suggests that Berkshire’s stock sales don’t necessarily spell doom for the broader market.
