Warren Buffett has been a net seller of stocks in recent quarters and has built up a record stockpile of cash.
The famous investor shared his thoughts on the market this past weekend at Berkshire Hathaway’s annual shareholder meeting.
The Dow Jones Industrial Average(DJINDICES: ^DJI), S&P 500 index (SNPINDEX: ^GSPC), and Nasdaq Composite(NASDAQINDEX: ^IXIC) all soared last year -- but Warren Buffett didn't jump on the bandwagon and aggressively buy stocks. Instead, the billionaire investor was a net seller and built up a record stockpile of cash at Berkshire Hathaway. Buffett is known for going against the crowd and avoiding trends, so it's no surprise that he didn't get in on the action, instead focusing on the fact that stocks were getting more and more expensive.
As a value investor, Buffett aims to buy quality companies when they're undervalued, so he won't jump into a stock at just any price. Clearly, in an expensive market environment, Buffett chooses to buy selectively.
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This year, though, amid concern about the impact of President Donald Trump's import tariffs on the economy and earnings, stocks have dropped from last year's highs -- and some have reached bargain valuations. The Nasdaq crashed last month, and the S&P 500 even temporarily entered a bear market. Since, the indexes have recouped some of their losses, but the market environment remains uncertain.
Against this backdrop, Buffett has sent a new $348 billion warning to Wall Street. Considering this, is he worried about the recent stock market turmoil? The answer may surprise you.
Image source: The Motley Fool.
Trump's tariff plans
First, let's consider the stock market's recent performance.
As mentioned, all three benchmarks sank last month as Trump rolled out tariff plans. The president then decided to pause the duties to allow for 90 days of negotiations, and that helped the indexes rebound. The reason? Any signs of flexibility from the U.S. suggest the final tariff levels might be reasonable and won't significantly impact growth. Trump also temporarily exempted electronics from all import tariffs -- another sign the administration aims to minimize negative impact on U.S. companies.
Of course, the risk remains that the final set of tariffs still may be high enough to make a mark on corporate earnings and the economy. And that's why it's been difficult for indexes to take one clear direction over the past few weeks.
Now, let's consider Buffett's activity in recent times. Last year, the chairman and chief executive officer of Berkshire Hathaway not only was a seller of stocks in general, but he also cut positions in some of his top holdings -- from Apple to Bank of America. As a result of the selling, he built a record level of cash, a move that may be seen as a warning to Wall Street that stocks were becoming too expensive and could be heading for declines.
As it turned out, the indexes did indeed drop this year. But instead of becoming a net buyer of stocks in recent times, Buffett remained in net seller territory and continued increasing Berkshire Hathaway's cash stockpile to $348 billion. This could be seen as a warning that, though some stocks have reached reasonable valuations, many remain expensive. But, against this backdrop, is Buffett worried about the recent market turmoil and what's to come?
Answers at the Berkshire Hathaway annual meeting
The Oracle of Omaha, as he's often called, offered us an answer this past weekend during the Berkshire Hathaway annual shareholder meeting.
"What has happened in the last 30, 45 days ... is really nothing," Buffett said at the meeting, according to CNBC. "This has not been a dramatic bear market or anything of the sort."
Buffett emphasized the importance of checking your emotions "at the door when you invest" and seizing opportunities to snap up shares at interesting valuations. These opportunities often arise during difficult markets.
A possible reason for Buffett's moves
So, though Buffett himself hasn't piled into stocks in recent times, the top investor isn't fleeing stocks and remains upbeat about the market over time. It's important to note that Buffett hopes to turn his role as Berkshire Hathaway CEO over to current vice chair of noninsurance operations Greg Abel at the end of the year -- it's possible that his moves today are to prepare for that moment, offering the company a solid stockpile of cash to deploy with Abel at the helm.
All this means that we as investors, like Buffett, shouldn't worry about recent stock market declines or short-term turmoil, instead focusing on the long term. The indexes always have advanced over time, suggesting that after this difficult spell, they'll head higher again -- and that's a great reason to drop the worries, focus on seizing opportunities, and invest for a lifetime.
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Bank of America is an advertising partner of Motley Fool Money. Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Bank of America, and Berkshire Hathaway. The Motley Fool has a disclosure policy.
