It seems quite clear that Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) CEO Warren Buffett is turning bearish on the stock market. Berkshire looks set to finish its second straight year as a net seller of stocks, and it has never dumped so many shares in its history.
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Through the first three quarters of 2024, Berkshire has sold $133.2 billion in stock, the majority of it Apple (NASDAQ: AAPL). And Buffett's conglomerate has purchased just $5.8 billion in stock so far this year. That mirrors a similar pattern to 2023, when Berkshire sold $32.8 billion worth of equities and bought just $9.1 billion.
Not only is Buffett emptying Berkshire's equity coffers, he's also given what's arguably an even more bearish signal about the market. For the first time in six years, Berkshire did not repurchase any of its stock, a sign that Buffett thinks Berkshire stock is overvalued at the current price.
The company -- whose holdings include insurance companies, the BNSF railroad, utilities, restaurants, consumer products producers, energy companies, and manufacturers, as well as its diversified stock portfolio -- has a market capitalization hovering around $1 trillion, and it's something of a microcosm of the stock market itself. So Buffett's reluctance to repurchase company stock seems to reflect his thoughts about the broader market.
Buffett, who is generally regarded as one of the greatest investors of all time, is known for saying, "Be fearful when others are greedy, and greedy when others are fearful." Right now, he clearly seems to be taking a fearful stance. Historically high valuations, especially in the CAPE ratio, indicate that the broad market is being greedy.
So, is Buffett's behavior a signal that other investors should follow him? Let's dig a little deeper to find out.
Image source: The Motley Fool.
Why Buffett is selling
Much of Berkshire's stock sales have come from its large stake in Apple, which has been Berkshire's biggest holding for several years. And Buffett has sung the company's praises on multiple occasions.
Over the last four quarters, Berkshire has sold 615.6 million shares of Apple, generating around $125 billion in proceeds.
In interviews, Buffett has continued to commend Apple's business but indicated that taking profits was a wise move because he believes the government will raise capital gains taxes soon.
Some politicians in Washington have discussed such a move, but no legislation has been enacted, and such a move now seems unlikely as President-elect Donald Trump has advocated for cutting corporate taxes. And Trump has the support of much of Wall Street and the business community, which seem to be loath to see capital gains rates go up.
Buffett has given other indications that he believes the market is overvalued, saying in his shareholder letter earlier this year that there are no longer appealing acquisition opportunities for his company. But it's an oversimplification to say that Berkshire's selling is strictly a result of Buffett's belief that the market is overvalued.
Buffett's great, but he's not perfect
It's worth remembering that Buffett, like all investors, makes mistakes, and even he hasn't always followed his aphorism about being fearful when others are greedy.
For example, in 2007, when the stock market peaked ahead of the great financial crisis, the worst crash of Buffett's career, Berkshire was eagerly buying stocks, not dumping them to squirrel away for a crippling recession. That year, Berkshire bought $19.1 billion in equities and sold just $8.1 billion.
More recently, Berkshire's track record as a net buyer and seller of stocks has been varied, so it doesn't seem to be the best indicator of Buffett's thinking, at least not on its own.
In 2020, the year of the coronavirus pandemic-induced crash, Berkshire was a net seller of stocks, a sign that it failed to take advantage of the market's plunge that March.
Buffett has also said that timing the market is impossible, so he doesn't expect to sell ahead of any crash and buy at the trough, despite his comments about fear and greed.
What it means for you
As an individual investor, it's easy to look for signals in Buffett's behavior, and sometimes they are correct. For example, there are other signs that the stock market could be overvalued, and his belief about taxes eventually going up could be validated since the deficit and national debt are problems that might require tax hikes to correct.
However, it's also worth remembering that the stock market tends to go up over time, and long-term investors have been rewarded even for buying just before a crash. For example, the S&P 500 is up nearly 300% since its peak in 2007, and it has nearly doubled since its peak before the coronavirus crash.
Paying attention to Warren Buffett's moves isn't a bad idea, but you should also remember that net buyers have historically been rewarded by the stock market -- even at the worst times -- if they hold long enough.
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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple and Berkshire Hathaway. The Motley Fool has a disclosure policy.
