Investors often look to Warren Buffett not only for investment ideas, but also for clues about what may be next for the stock market. That’s because the billionaire has proven his knowledge of the market over the long term, and it’s produced big results. At the helm of Berkshire Hathaway, he’s led the portfolio to a compounded annual gain of nearly 20% over 58 years. That’s compared to a compounded annual increase of about 10% for the S&P 500.
Buffett understands when to make a particular investing move, whether it entails buying or selling stocks, and he often goes against the crowd. The Oracle of Omaha is known for writing that he and his team “attempt to be fearful when others are greedy and to be greedy only when others are fearful.”
So, today, as the S&P 500 soars to record high after record high, heading for a 22% increase this year, it’s a smart idea to look at Buffett’s latest moves. In recent quarters, the top investor has sold shares of his biggest holding — Apple (NASDAQ: AAPL) — and put $2.9 billion into another favorite. Is this move a warning for Wall Street? Let’s dig deeper and find out.
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Stocks may be getting pricey
First, it’s important to note that gains in the S&P 500 have been accompanied by an increase in valuations, suggesting that stocks in general may be getting expensive. This is something that may set off an alarm for Buffett, a value investor. He aims to buy a stock when it’s trading below what the particular company is truly worth. Buffett’s goal is getting in on a stock for a bargain — or at least reasonable — price and holding on for the long term. The idea is, as the rest of the market discovers the company’s value, the stock price will rise, and Buffett will score a win.
Today, the S&P 500 Shiller CAPE ratio, an inflation-adjusted measure of earnings over a 10-year period in relation to price, is showing stocks at one of their most expensive levels ever. This is the third time the measure has surpassed 35 since the S&P 500’s debut as a 500-stock index in the late 1950s.
S&P 500 Shiller CAPE Ratio data by YCharts
Now, let’s discuss Buffett’s recent moves. Against this backdrop, Buffett hasn’t been a major buyer of stocks lately. For example, in the second quarter, he only took on two new positions — Ulta Beauty and Heico — and, as mentioned, sold shares of Apple, one of his favorite long-term holdings. Buffett sold 49% of his Apple stake after already cutting his holding by 13% in the first quarter.
The billionaire also made a $2.9 billion bet in the first six months of the year: repurchasing shares of Berkshire Hathaway. While this may sound like a big move, the repurchases actually have slowed in recent times after a considerable spike in 2020 and 2021.
BRK.A Stock Buybacks (Quarterly) data by YCharts
Is Warren Buffett worried?
Does Buffett’s selling of one of his favorite stocks, along with his slowdown in Berkshire Hathaway repurchases, represent a warning for Wall Street? Could Buffett be worried about declines in the market in the coming months?
It’s possible Buffett may expect declines in the near term. After all, in his latest shareholder letter, he said markets are showing more and more “casino-like behavior.”
But this wouldn’t necessarily push Buffett to sell or invest less in his favorite companies. Buffett earlier this year said he expected the capital gains tax to rise, suggesting his sales of a stock like Apple was done to lock in some profits at the current rate. And Apple remains Berkshire Hathaway’s biggest position.
As for the Berkshire Hathaway buyback level, Buffett emphasized in his latest shareholder letter that repurchases are “100% discretionary” and, referring to the company in general, wrote, “Berkshire is built to last.” So, it’s clear any dip in repurchases isn’t linked to a lack of confidence in the future of the market or the company.
Instead, we should see Berkshire Hathaway’s rather regular investment in itself at any level as a positive move, showing confidence in the portfolio and the general market over time. And this brings me to one other key point: Buffett’s investment strategy is based on investing for the long term, which means he chooses quality companies and sticks with them for years, no matter what direction the market as a whole is taking at a particular moment.
All this means Buffett’s latest moves aren’t a warning for Wall Street, but instead, when examined closely, show this billionaire still believes in the potential of quality companies — and the market in general — to deliver over the long run.
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Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Berkshire Hathaway, and Ulta Beauty. The Motley Fool recommends Heico. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.