Warren Buffett's Recent Sales: Insights for Investors

Investing in the Berkshire Hathaway (BRK.A 0.62%) (BRK.B 0.41%) holding company has proven to be highly lucrative. If you had invested $1,000 when Warren Buffett became CEO in 1965, your investment would be worth an astounding $44.7 million by the end of 2024. In comparison, the same investment in the S&P 500 (^GSPC 1.08%) index would have grown to only $342,906 during that time.

Currently, Berkshire Hathaway holds about $277 billion worth of publicly traded stocks. However, this amount has decreased significantly over the past year due to a selling spree by Buffett and his team. Notably, they sold the conglomerate's two S&P 500 index funds, which include the Vanguard S&P 500 ETF and the SPDR S&P 500 ETF Trust, in the last three months of 2024.

Despite these sales, which amounted to only $46 million worth of index funds, Buffett's moves occurred just before the S&P 500 began to correct itself. It's important to note that Buffett does not possess a crystal ball; he is adhering to his proven investment strategy that has served Berkshire well for nearly six decades. Therefore, there is no need for investors to get anxious about his recent actions.

High Valuations in the S&P 500

Buffett is known for being a value investor who seeks to acquire quality stocks at fair prices, preferably lower prices, intending to hold them for the long term. He prefers companies that demonstrate consistent growth, solid profits, and strong management. Buffett favors firms that implement shareholder-friendly practices, such as dividend payments and stock buybacks, as these strategies help enhance his overall returns.

The price-to-earnings (P/E) ratio ranks among the most commonly used metrics for evaluating stock prices on Wall Street. This ratio is obtained by dividing a company's share price by its earnings per share. Historically, the S&P 500 has averaged a P/E ratio of 18.1 since the 1950s. However, it peaked at above 29 towards the end of the previous year, making the index significantly overpriced.

Even after the recent correction of over 10%, the S&P 500 still holds a high P/E ratio of 26.7, indicating potential for further declines. Knowing when to buy is just one part of being a successful value investor. Experts like Buffett also recognize the importance of selling when the market becomes overheated, allowing them to have cash ready to invest when prices fall.

Berkshire's Selling Frenzy in 2024

Between 2016 and 2023, Berkshire invested about $38 billion in shares of Apple (AAPL 1.15%), marking its largest investment in a single company. Heading into 2024, this position was worth over $170 billion and constituted around 50% of Berkshire's entire portfolio. However, it was unexpected when Buffett and his team began to sell more than half of their Apple holdings over the last year. Berkshire currently retains about $63 billion in Apple stock, which now accounts for only 23% of its total portfolio.

Berkshire has trimmed positions in various other companies, including Bank of America, Chevron, T-Mobile, Louisiana Pacific, and Charter Communications. Additionally, they completely exited positions in companies like Snowflake, Floor and Decor Holdings, Paramount Holdings, HP Inc, and Ulta Beauty. This trend indicates that Buffett is not particularly negative about any individual sector but is instead cautious about the market as a whole.

Berkshire now holds a record cash reserve of $334 billion, which is greater than the total value of its publicly traded stocks. This large amount of cash illustrates Buffett's cautious approach toward the current market. Historically, he has proven that he will deploy these funds into new investments when he believes values are more attractive.

Buffett's Recent Stock Purchases

While Buffett's recent sales may lead to investor worry, it's crucial to remember that he has consistently purchased stocks in various market conditions throughout his career. He continues to seek opportunities, as seen in his new positions taken toward the end of 2024 in companies like Domino's Pizza, Pool Corporation, and Constellation Brands. These additions indicate his positive outlook on consumer spending, which could bode well for corporate profitability.

Moreover, history consistently shows that the S&P 500 eventually reaches new highs over time. Investors who have viewed market dips as opportunities to buy have generally fared much better than those who panicked and sold. Although the current S&P 500 valuation may seem high, it's possible that if companies continue to grow their earnings as anticipated, these valuations could become more reasonable moving forward.

Looking back five years from now, the present levels in the S&P 500 may appear to be a bargain.

Buffett, Investing, Market