Buffett is selling stocks. He has sold more stocks than he has bought in each of the past seven quarters.

The Oracle of Omaha made the largest stock sell-off in history last quarter, reducing his Apple holdings by about half, worth about $73 billion. In the first half of 2024, Buffett's total stock sales were $97 billion, while new stock purchases were only $4.3 billion.

The stock sell-off continues. While final sales data for the third quarter is not yet available, SEC filings show that Buffett sold a large portion of Berkshire Hathaway's Bank of America shares. As of September 24, he had sold $9 billion worth of Bank of America shares.

Buffett has said he sold shares of companies like Apple and Bank of America in part because he believes corporate tax rates will rise after the current tax law expires at the end of next year. Berkshire has large unrealized capital gains on both stocks, and the prices of both stocks have risen sharply since Berkshire first bought them between 2016 and 2018.

But Buffett's decision to sell also suggests that he believes these stocks are trading near or above their intrinsic value. If he believes these stocks are undervalued, he should be willing to pay higher taxes in the future in order to own an undervalued asset today.

This sentiment could also go a long way toward explaining why Buffett has also been less active on the buy side of his portfolio.

Buffett didn't even buy his favorite stock

Buffett's favorite stock over the past few years has undoubtedly been Berkshire Hathaway's own stock. He has been buying back the company's stock since the board renewed its buyback authorization in 2018. Now, whenever Buffett believes that the company's stock price is below its intrinsic value, he has the opportunity to buy back.

But last quarter, his stock buybacks slowed to a snail's pace, totaling just $345 million. In June, Buffett didn't even buy any shares. And according to Berkshire's July report, Buffett also doesn't appear to have done any stock buybacks at the start of the third quarter. Considering that Berkshire's stock price has been well above its trading levels in June and July for most of the time since then, it's unlikely that Buffett did a large buyback in the third quarter.

Another favorite stock of Buffett over the past few years is Occidental Petroleum. Buffett has been investing in the oil and gas company since 2019, when he acquired $10 billion worth of preferred shares in the company. He then bought 29% of the company's common stock, which means that he must file disclosure documents with the U.S. Securities and Exchange Commission every time he buys or sells the company's stock.

But there have been no such disclosures since June, and Buffett has held off on selling even as the stock has hit new lows amid falling oil prices.

Cash accumulation speed increases

Buffett sold $9 billion worth of Bank of America shares alone this quarter, and rarely bought new shares or repurchased shares, and Berkshire Hathaway's cash position is climbing rapidly. As of the end of the second quarter, Buffett's cash and U.S. Treasury bonds had reached $277 billion.

If you factor in about $10 billion in operating cash flow from Berkshire's core businesses, as well as interest income from existing U.S. Treasury bonds, the company's current cash position could easily exceed $300 billion. The only factor that could prevent it from reaching that milestone is the massive tax bill expected this quarter from Buffett's massive stock sell-off earlier this year.

Currently, cash and U.S. Treasuries account for nearly 50% of Berkshire Hathaway's investable assets, not including the $169 billion in insurance float available for investment.

Buffett's apparent preference for safety, even to the point of not liking his own company's current valuation, is a stark warning to stock investors: There's nothing to be nostalgic about in the stock market -- at least for Berkshire Hathaway's portfolio.

Should we follow Buffett’s lead?

As for whether to follow Buffett in a large-scale "position adjustment", analysts pointed out that in fact, most people do not manage a portfolio size of $600 billion, and driving a large ship is much more difficult than driving a small speedboat. In addition, Buffett faces the challenge of creating a higher-than-market return rate for shareholders. If investors can get the same return by investing in the S&P 500 index fund, then what is the point of buying Berkshire Hathaway stock?

That is, at current prices, many of the large-cap stocks in Berkshire Hathaway's investable universe are unattractive to Buffett. That may even include Berkshire Hathaway's own stock. Buffett's recent lack of stock buybacks at least suggests this.

But for individual investors, there is a much larger universe to invest in. Small-cap stocks are particularly attractive given their valuations, and they are likely to benefit from upcoming rate cuts and money supply growth in the coming years.

While investors shouldn't ignore Buffett's warning, it's important to understand what it means. Just because Buffett doesn't have a lot of good investment options right now doesn't mean a storm is coming.

The article is forwarded from: Jinshi Data