Warren Buffett, the renowned investor and chairman of Berkshire Hathaway, has been making waves in the market with his recent actions. Despite the bull market’s impressive gains over the past two years, some investors are worried about what may happen next. In an effort to provide clarity on this concern, let’s take a closer look at 18 words from Buffett’s latest shareholder letter.
According to Berkshire Hathaway’s latest annual report, the company has been a net seller of stocks for nine consecutive quarters. This trend is particularly notable given that Warren Buffett himself has reduced his positions in stocks he considers favorites, such as Apple and Bank of America. However, some may interpret this behavior as a sign of Buffett fleeing stocks.
However, a closer examination of Buffett’s latest shareholder letter reveals a more nuanced approach to investing. In 18 words, Buffett reassures investors that Berkshire Hathaway will continue to deploy substantial funds in equities, prioritizing ownership of good American businesses over cash-equivalent assets.
This message reinforces Buffett’s long-held belief that solid American companies will drive the market higher over the long term. Rather than fleeing stocks or advising others to do so, Buffett appears to be taking a cautious approach, locking in gains during bull markets and holding back on buying when valuations are high.
The S&P 500 Shiller cyclically-adjusted price-to-earnings (CAPE) ratio, a valuation measure that looks at stock prices and earnings over time, recently reached beyond 37 – a level it has only achieved twice since the benchmark’s launch as a 500-company index in the late 1950s.
So, what does this mean for investors? Buffett’s approach offers a valuable lesson: being cautious when valuations are high, selectively buying quality stocks at reasonable prices, and setting aside cash to invest in new opportunities. By following this strategy, investors may increase their chances of long-term success.
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Source: https://finance.yahoo.com/news/warren-buffett-really-fleeing-stocks-231000416.html