If you invest $1000 in… Standard & Poor’s 500 In 1965, it was worth about $325,053 today. However, if you invest $1,000 in stocks Berkshire Hathaway(NYSE: BRK.A)(NYSE: BRC.B) Meanwhile, he is now worth $42.5 million.
It was in 1965 when Warren Buffett became CEO of Berkshire. He now oversees a $291 billion portfolio of publicly traded stocks and securities, as well as several wholly owned private companies. Berkshire also has $325 billion in cash, which Buffett and his team can tap when they discover new opportunities.
Given Berkshire’s impressive performance compared to the S&P 500, it’s no surprise that Wall Street is watching Buffett’s every move. According to the group’s 13-F filings, it is in a sell-off position in 2024.
However, Berkshire’s third-quarter financials revealed something even more surprising. For the first time in six years, Buffett He didn’t do that Buy his favorite stocks. Which is why this should ring alarm bells on Wall Street.
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Berkshire It spent about $38 billion to buy shares apple(Nasdaq: Apple) Between 2016 and 2023, this is the largest amount I have ever invested in a single company. This position was worth more than $170 billion at the beginning of 2024, so Berkshire was making very good gains.
Apple accounted for half the value of Berkshire’s entire portfolio of publicly traded stocks and securities at that point. The group has sold small amounts of Apple stock over the years to cash in on some of its gains, but has significantly ramped up its selling in 2024.
Berkshire disposed of 13% of its stake in Apple in the first quarter, which Buffett said was for tax reasons. But the group then sold 49% of its remaining shares in Apple in the second quarter, followed by 25% of the remainder in the third quarter. No real reasons were given.
apple It remains Berkshire’s largest position With a weight of 25.7% in its portfolio, Buffett may not have taken a very negative view of the company. Moreover, this wasn’t the only stock Berkshire trimmed this year.
In 2024 so far, Berkshire has reduced its stake in… Chevron, T-Mobile, Capital One Financialand Bank of America. It also sold its entire positions in… Paramount Global, HP, Holding for Flooring and DecorationAnd artificial intelligence company Snowflake.
As I mentioned earlier, Berkshire now has $325 billion in cash. It is the largest pile of dry powder the group has ever kept.
The S&P 500 is up about 25% this year, which follows a strong 26% gain in 2023. Considering the average annual return of 10.5% since its founding in 1957, that’s two birds. General running. However, it is now undoubtedly expensive. The index is trading at a price-to-earnings (P/E) ratio of 25.7 as of this writing, which represents a 42% premium to its long-term average of 18.1.
Apple is the largest company in the S&P 500, and it seems even more More expensive than the index. It is currently trading at a P/E ratio of 41.1, which is close double His 10-year average is 22.4.
Valuation is not a good timing tool because markets can remain expensive for years, so this is not a signal for investors to sell all of their shares. However, Buffett is obligated to make decisions that he feels will benefit Berkshire shareholders, so cashing out some of the group’s impressive gains from the past few years is simply good portfolio management at these extreme valuations.
There is one stock Buffett has bought every quarter since 2018 regardless of what the broader market is doing. You won’t find it in the 13-F filings, because the stock is…. Berkshire Hathaway!
Buffett has allowed $77.8 billion worth of Berkshire stock to be bought back over the past six years, more than double the amount he invested in Apple. When Berkshire buys its own stock on the open market, it reduces the number of shares outstanding, which organically increases the stock price by a proportional amount. Buybacks are Buffett’s preferred way to return money to shareholders (instead of paying dividends).
But during the third quarter of 2024, Buffett did not authorize this any Absolutely no repurchase. According to the chart below, this was the first time he had avoided his favorite stocks since the buyback program began in 2018.
There may be two things at play. First, given valuations in the rest of the market, Buffett may feel that Berkshire shares are also expensive (they trade at a slight premium compared to the 10-year average price-to-sales ratio). Second, Buffett may want to preserve cash in the event of a sharp correction in the S&P 500, so he can use it to get some trades.
So, perhaps this is just a temporary pause in Berkshire’s buyback program. The conglomerate can buy back its own shares at management’s discretion as long as its cash and cash equivalents and holdings in US Treasuries remain above $30 billion. As I mentioned earlier, that number currently stands at $325 billion.
With all that said, when an investment giant like Berkshire shrinks its portfolio, hoards cash, and avoids buybacks, it’s not a great sign for the broader market. Investors should not be in a rush to sell stocks, but should be mentally prepared for a possible correction in the S&P 500 over the next year or so.
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Bank of America is an advertising partner of Motley Fool Money. Anthony Di Bizzio He has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Bank of America, Berkshire Hathaway, Chevron, HP, and Snowflake. The Motley Fool recommends T-Mobile US. The Motley Fool has Disclosure policy.
