Warren Buffett, one of the most successful investors in history, is flashing a warning sign to Wall Street by selling his stocks. Despite his iconic phrase “be greedy when others are fearful,” Buffett’s actions suggest he’s becoming fearful instead.
In 1987, Buffett wrote about two “super-contagious diseases” – fear and greed – that can be unpredictable in timing and degree. He cautioned against letting euphoria prevail in the market, saying it would eventually lead to a correction. His words were prophetic, as just months later, the S&P 500 plummeted 33%.
Today, Buffett is doing something similar by being a net seller of stocks for eight consecutive quarters. He’s also built up Berkshire’s cash reserves to over $325 billion, a record high. Moreover, he hasn’t approved any stock buybacks in recent quarters, indicating a lack of confidence in the market.
The warning sign is clear: Buffett seems fearful. With the S&P 500 near its all-time high and valuations at a premium, many other investors appear to be greedy. The “Buffett indicator” suggests that when this ratio approaches 200%, you’re playing with fire.
While some might say all investors should be fearful, caution is advisable. Being selective about stock picks, focusing on valuation and growth prospects, and having cash on hand can help navigate the market’s volatility. Buffett’s approach has paid off handsomely over the long run, and it’s worth taking note of his strategy as you consider your own investment decisions.
Source: https://www.fool.com/investing/2024/11/20/warren-buffetts-flashing-warning-sign-for-wall-str