Warren Buffett, one of the most respected portfolio managers in the world, has sent a warning signal to investors that he doesn’t like what he’s seeing in the stock market. After selling more of Berkshire Hathaway’s equity portfolio, including massive portions of its stakes in Apple and Bank of America, the company ended the third quarter with a record $325 billion in cash and Treasury bills.
Buffett has been a net seller of stocks in each of the last eight quarters, selling $36.1 billion worth of stock in the second quarter alone. He sold 25% of Berkshire’s remaining stake in Apple, leaving the company with approximately 300 million shares of the stock. Buffett also turned his attention to Bank of America, selling $9.6 billion worth of the stock last quarter.
The billionaire investor implied that he’s taking advantage of the current tax law to realize capital gains at a lower tax rate. However, it’s unclear if this is the main reason for his stock sales. Buffett has been vocal about his concerns over valuations, stating that many stocks are trading near or above their intrinsic value. He hasn’t bought back a single share of Berkshire Hathaway in four months, which is unusual given his history of buying shares when prices were undervalued.
The sale of Apple and Bank America stocks comes as the S&P 500 trades at a forward price-to-earnings ratio of about 21.8, well above its long-term average of 15.7. The Shiller CAPE ratio is also above 36, a level seen briefly in 2021 before the 2022 bear market.
While Buffett’s situation is unique, his concerns over valuations are important for individual investors. Smaller investors have more opportunities to find undervalued stocks with potential for growth. However, large-cap stocks like Apple and Bank of America may not be worth the time and effort to analyze and buy.
Source: https://www.fool.com/investing/2024/11/08/warren-buffett-just-sent-a-325-billion-warning-to