Any big move by Warren Buffett could be a front-page headline, and the investing community was in an uproar over the weekend with the news that Berkshire-Hathaway (NYSE: BRK.A)(NYSE: BRK.B) almost half sold = it is Apple stocks in the second quarter. This happened immediately after other large sales in the portfolio.
Let’s look at what’s happening and why Buffett may be a seller right now.
Is Buffett done with Apple?
At first glance, you might think Buffett has lost his love for Apple, but when you look at the bigger picture, things look different. Even after the sale, Apple remains by far the largest holding in Berkshire Hathaway’s portfolio.
Buffett also caused a stir at the beginning of the year with a sale of Apple shares, when he reduced his Apple share from 49 percent of the portfolio to 44 percent. At current prices, it is only about 28 percent.
Despite reducing his stake, Buffett speaks very positively about Apple. At Berkshire Hathaway’s annual shareholder meeting in May, he said he expected Apple to remain a part of his portfolio, saying it was an even better deal than two other long-time favorites, American Express And Coca-Cola.
This stock sale seems to be less about concerns about Apple and more about something else.
Buffett also sold other stocks
Buffett also caused a stir in recent weeks with the news that he would sell part of his Bank of America Stocks in small steps. In July, he sold $2.3 billion worth of BofA shares in six days. Bank of America remains the second-largest holding in Berkshire Hathaway’s portfolio, accounting for 11.7% of the total. He is clearly still comfortable with the bank, having completely divested himself of positions in other banks in recent years.
One stock he continues to buy, however, is Berkshire Hathaway. The company spent nearly $2.6 billion in the first quarter to buy back its own shares, continuing to invest in itself.
Keeping up with interest rates
Amateur analysts don’t know exactly why Buffett sold stocks, or these stocks specifically. He hasn’t said anything publicly. But he did say a few things recently that may give investors clues. At Berkshire Hathaway’s annual meeting, he said:
Unless something dramatic happens that really changes our capital allocation strategy, Apple will remain our largest investment, but I’m not at all opposed to increasing the cash position under the current conditions. I think when I look at the alternatives that are available, the equity markets, and when I look at the composition of what’s going on in the world, we find that quite attractive.
Berkshire Hathaway can generate an attractive return without taking on any risk from the huge cash reserves it holds via short-term Treasuries. Combine that with a volatile stock market, and holding cash makes a lot of sense right now.
But there is another reason.
Ready to jump?
Buffett looks for undervalued stocks that the market may miss (in addition to other characteristics). But he is patient, and if there is nothing that meets his investment criteria, he doesn’t buy anything. At the annual meeting, he said, “There have been times in my life when I have been inundated with so many opportunities that I could have invested everything by nightfall.” But not recently: “We haven’t seen anything that makes sense and makes a difference.”
Is this a warning to the markets? Not necessarily. Holding cash is a good reason to hold on and wait for attractive opportunities. Buffett has indicated that even without high interest rates, he will not buy stocks if the value proposition is not strong enough.
Could this be a warning to the markets? It could, because it signals that stocks are currently overpriced. When valuations get too high, corrections in the markets are inevitable. It’s a cycle that repeats itself over and over again. So while it could be a signal of an impending correction, or even something worse than a correction, it’s not a signal for panic selling or even concern.
As always, investors can benefit from Buffett’s wisdom and approach to investing. However, you should keep in mind that Buffett runs a publicly traded holding company, and that means his strategy differs from that of the average investor. You can buy Berkshire Hathaway stock to benefit from his direct leadership, but for your personal portfolio, you should follow his general advice rather than his specific steps.
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American Express is a promotional partner of The Ascent, a Motley Fool company. Bank of America is a promotional partner of The Ascent, a Motley Fool company. Jennifer Saibil holds positions in American Express and Apple. The Motley Fool holds positions in and recommends Apple, Bank of America, and Berkshire Hathaway. The Motley Fool has a disclosure policy.
Warren Buffett is selling stocks. Here’s the hidden reason why. was originally published by The Motley Fool
