Warren Buffett's Flashing Warning Sign for Wall Street: He's Being Fearful While Other Investors Are Greedy
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Warren Buffett has made it abundantly clear throughout his career that he doesn't care what Wall Street thinks. One great example: Unlike most huge companies, Berkshire Hathaway doesn't hold quarterly conference calls with analysts.
However, Wall Street might want to pay attention to what Buffett thinks. And what is the legendary investor thinking these days? He appears to be flashing a warning sign to Wall Street and anyone else who will take heed.
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Buffett's famous axiom
In Buffett's 1986 letter to Berkshire Hathaway shareholders, he wrote about two "super-contagious diseases" -- fear and greed. He compared fear and greed to epidemics that are unpredictable in timing, duration, and degree.
Buffett's analogy set the stage for what became of his most famous axioms: "[W]e simply attempt to be fearful when others are greedy and to be greedy only when others are fearful." This statement lies at the heart of Buffett's contrarian investing style.
When Buffett wrote those words in early 1987 (the letter focused on Berkshire's operations in the previous year), the stock market was booming. He acknowledged this, stating, "As this is written, little fear is visible in Wall Street. Instead, euphoria prevails-and why not? What could be more exhilarating than to participate in a bull market in which the regards to owners of businesses become gloriously uncoupled from the plodding performances of the businesses themselves."
But Buffett added, "Unfortunately, however, stocks can't outperform businesses indefinitely." His statement looks prophetic in retrospect. Only a few months later, the S&P 500 plunged 33%.
Buffett seems fearful now
To be clear, Buffett did not claim to know in early 1987 that the stock market would crash soon. He even said in the letter to Berkshire shareholders, "[W]e have no idea-and never have had-whether the market is going to go up, down, or sideways in the near- or intermediate-term future."
I point that out because Buffett's flashing warning sign to Wall Street today isn't related to a dire proclamation that he's uttered. (He hasn't made any, to my knowledge.) However, the 94-year-old investor's actions speak louder than his words. Buffett seems fearful.
He has been a net seller of stocks for eight consecutive quarters. Buffett has built Berkshire's cash stockpile to more than $325 billion -- the largest level in the company's history by far. Perhaps most ominously, he didn't approve any stock buybacks for Berkshire in the third quarter. When Buffett isn't buying shares of Berkshire Hathaway, it's a pretty good sign that he doesn't have a warm-and-fuzzy feeling about the rest of the stock market.