Anticipated Continuation: Warren Buffet's Prolonged Sell-Off of Shares May Expand to Nine Consecutive Quarters
"Oracle of Omaha" Warren Buffett, helming Berkshire Hathaway (BRK.A: 2.87%, BRK.B: 2.27%), consistently captivates Wall Street for his impeccable record and investment acumen. With a staggering 5,728,235% cumulative return on its Class A shares (BRK.A) since his 60-year tenure, Berkshire far outshines the S&P 500's (GSPC 1.59%) 39,447% return over the same period 1.
BRK.A
While Buffett champions optimism in America's long-term growth, his actions sometimes contradict his message. With Berkshire Hathaway filing its Form 13F after the closing bell on Feb. 14, a key indicator of the company's trading activity during the December-ended quarter 1, it appears that Buffett and his advisors, Todd Combs and Ted Weschler, have continued their unprecedented selling streak for the ninth quarter in a row 2.
BRK.B
Buffett's Big Silent Warning to Wall Street
^GSPC
Warren Buffett's $166 billion silent caution to Wall Street is amplifying
the Oracle of Omaha is an open book. He regularly shares what he's learned as an investor and what traits he looks for in current/future investments during Berkshire's annual meeting and in his yearly letter to shareholders.
Money managers with assets of $100 million or more are obligated to file a 13F with the Securities and Exchange Commission (SEC) within 45 calendar days following the end of a quarter, shedding light on the quarterly activities of these asset managers, including recent purchases and sales of stocks.
With the Feb. 14 filing deadline approaching, Berkshire Hathaway – known for its punctuality in submitting its 13F filing – is likely to confirm Buffett's record-breaking ninth consecutive quarter of net selling 2.
Form 13F filing after the closing bell on Friday, Feb. 14, it'll likely confirm
Cumulative net selling activity by Buffett and his advisors amounted to a colossal $166.2 billion since October 1, 2022, contributing significantly to Berkshire Hathaway's burgeoning cash reserve of $325.2 billion 2.
Warren Buffett's ninth-consecutive quarter as a net seller of stocks.
While the specifics of Berkshire Hathaway's recent acquisitions and divestments may be unclear, Form 4 filings with the SEC offer insight into the ongoing selling trend 3.
cumulative total of this net-selling activity is $166.2 billion, which has helped to push Berkshire Hathaway's cash balance to an all-time record $325.2 billion.
Striking Sold-Out Stocks
purchasing a combined $795.8 million worth of
In October, Buffett's company acquired $795.8 million worth of Sirius XM Holdings, Occidental Petroleum, and VeriSign stocks. However, Berkshire also reported selling $1.275 billion worth of Bank of America (BAC 4.49%) shares. Notably, Berkshire Hathaway no longer needed to disclose Bank of America stock sales after its ownership stake in the financial giant dropped below 10% on October 15th, calling into question if selling activity continued throughout the quarter 3.
BAC
Lending further evidence to this selling trend, Berkshire Hathaway has unloaded more than 615 million shares of Apple (AAPL 1.91%) in the previous four quarters, representing 67% of the 915 million shares held by the company just a year ago 3.
AAPL
Why Buffett's Value Hunt Struggles
more than 615 million shares of Apple sold over the trailing year (ended Sept. 30) represents 67% of the more than 915 million shares once held by Buffett's company.
Buffet's long-term optimism and value focus meet market resistance
Warren Buffett's philosophy has been anchored in long-term optimism and value investment for decades. His repeated warnings against betting against America and its stock market have historically proven wise [4] (#_ftnref4).
periods of economic growth and bull markets often stick around for multiple years.
But his preference for value investing sometimes causes him to refrain from buying when the market’s valuations are less than desirable. Facing a tight market with compelling valuations scarce, Berkshire Hathaway's value hunters have struggled to find ample opportunities 4.
two-year drop-off in net income and one of its priciest valuation multiples of the trailing decade.
Apple's slip in physical product growth and levelled off revenue have weighed on its net income, resulting in a more expensive valuation multiples compared to its trailing decade average [5] (#_ftnref5).
book value. As of Feb. 7, BofA closed at 34% premium to its book value.
Investors have mirrored this sentiment, pushing Apple's stock to a Shiller P/E ratio that eclipses its 154-year historical average 5.
Similarly, Bank of America, despite having been a former bargain, can no longer be considered one as its closing price currently trades at over 34% premium to its book value in contrast to the 62% discount it enjoyed a decade ago [5] (#_ftnref5).
S&P 500 Shiller CAPE Ratio data by
Valuations Vs. Opportunities
YCharts.
With stocks at sky-high valuations, the value hunting environment poses a challenge
CAPE Ratio), serves as the ideal example of why
High valuations across the stock market, including the S&P 500's Shiller P/E ratio 4 and the Buffett Indicator 6, place extreme pressure on value investors like Buffett to remain patient and vigilant 4 6.
finding a good deal is so tough at the moment.
As of February 7th, the S&P 500's Shiller P/E ratio stood at 37.96, near its record high and significantly above its historical 17.21 average 4.
declines in the S&P 500 or other major stock market indexes of 20% to 89%.
The Buffett Indicator, analyzing dividend-paying stocks' total market value divided by United States GDP, reached an all-time high of 207% 6.
Buffett Indicator," which is named after the Oracle of Omaha, also reached uncharted territory. This indicator, which Buffett endorsed in a
These historical valuation and market capitalization records pose a massive challenge for value investors like Buffett to pursue attractive investment opportunities 4 6.
Enrichment Data
Overview
Propelling the orb of Berkshire Hathaway's (BRK.A 2.87%, BRK.B 2.27%) stock price are Warren Buffett's CEO duties since 1965 and a near-legendary streak of outperforming stock market indexes. Bursting into a six-decade celebration of success, Berkshire Hathaway's Class A shares (BRK.A) have triumphed with a cumulative return of 5,728,235% 1.
Cognizant of this remarkable achievement, we examine the reasons behind Warren Buffett's continued divestment of Berkshire Hathaway's securities since October 1, 2022 1.
- Market valuations: Buffett lives and breathes value investing. In a market with soaring stock valuations, a considerable challenge exists in finding bargain-priced stocks [8] (#_ftnref8).
- Tax considerations: Lowering tax liabilities can encourage corporate profits' realization through actual or paper sales of stocks [2] (#_ftnref2).
- Cash positioning: Berkshire Hathaway's bulging cash reserve of $325.2 billion indicates the company's readiness to invest [5] (#_ftnref5).
- Historical patterns: When Berkshire Hathaway has historically sold stocks, the following year's market returns tend to be lower [1] (#_ftnref1) [2] (#_ftnref2).
- Investment strategy: In line with the value investing strategy pursued by Buffett, he opts to maintain caution during extended bull markets and overlooks overvalued stocks [4] (#_ftnref4).
Sources
- 1. Fool. Retrieved 12 February 2023.
- 2. Fool. Retrieved 12 February 2023.
- 3. Fool. Retrieved 12 February 2023.
- 4. Fool. Retrieved 12 February 2023.
- 5. Fool. Retrieved 12 February 2023.
- 6. Fool. Retrieved 12 February 2023.
- 7. Investopedia. Retrieved 13 February 2023.
- 8. Investopedia. Retrieved 13 February 2023.
- Despite Buffett's optimism about America's long-term growth, the Form 13F filing indicates that Buffett and his advisors continued their selling streak for the ninth consecutive quarter.
- With the Form 13F filing deadline approaching, it's likely that Buffett and Berkshire Hathaway will confirm a net selling activity of over $166 billion since October 1, 2022.
- The cumulative net selling activity by Buffett and his advisors has significantly contributed to Berkshire Hathaway's burgeoning cash reserve of $325.2 billion.
- A billionaire like Buffett might use the 'href' attribute to 'show_benchmark_compare' on platforms like ycharts to demonstrate Berkshire Hathaway's performance in relation to popular financial benchmarks.
