Warren Buffett is considered one of the greatest investors of all time and his track record proves this. He took Berkshire-Hathaway (BRK.A -0.21%) (BRK.B 0.03%) from a struggling textile company in the 1960s to a huge conglomerate worth $900 billion today by buying high-value companies at a fair price. Since Buffett took over the company, Berkshire Hathaway’s stock has increased by an average of 19.8% annually, significantly more than the 10.2% of the S&P500 in the same period.

Buffett is responsible for almost all of Berkshire’s stock portfolio and manages the company’s liquidity. But last quarter was the clearest warning yet that Buffett doesn’t see much positivity in the current stock market situation. That’s reflected in Berkshire’s liquidity and Treasury securities, which rose to $277 billion in the second quarter, $88 billion more than the previous quarter.

Here’s how Berkshire got there and what it means for investors.

Image source: The Motley Fool.

Buffett just made the largest stock sale in his history

Buffett sold over $77 billion worth of stocks in the second quarter. That far exceeds any amount Buffett has ever sold in a year, let alone a single quarter. With just $1.6 billion worth of stock purchases last quarter, that’s seven consecutive quarters in which Buffett has sold net stocks.

By far the biggest share sale was Buffett’s decision to sell Berkshire’s position in Apple (AAPL 1.37%). At one point, Apple made up nearly 50% of Berkshire’s total portfolio. However, as of June 30, Berkshire’s Apple shares were worth $84.2 billion, or 29.5% of the company’s equity holdings. That suggests Berkshire sold about half of its Apple shares last quarter.

This is the third consecutive quarter that Buffett has reduced his stake in Apple, a company he called “a better business than any other we own” at last year’s shareholder meeting. He explained his reasons for the sale at the last shareholder meeting. He believes the current tax code is very favorable for companies and is willing to pay taxes now to avoid higher taxes later. Berkshire is sitting on a massive capital gain from its Apple investment.

Buffett has also reduced another top holding since the end of the quarter – he sold shares worth $3.8 billion. Bank of America (BAC 0.18%) Stock since mid-July. Berkshire is also making a significant profit with these stocks.

However, it is one thing to strategically use capital gains to secure a low tax rate. But Buffett could immediately reinvest that money (minus the estimated tax bill) if he sees good opportunities in the market. He could even immediately buy back the sold shares without penalty, since the wash sale rule does not apply to capital gains, only capital losses.

Even Buffett’s penchant for buying a particular stock month after month seems to have disappeared in the current market.

Buffett bought this stock for 24 months … and then stopped

While Buffett has consistently sold more stocks than he bought for nearly two years, there is one stock he has been buying month after month with Berkshire’s extra cash: Berkshire Hathaway’s own shares.

Berkshire revised its share buyback program in mid-2018, allowing Buffett to buy back shares when he believed they were trading below their intrinsic value. Since then, Buffett has gone just a few months without buying any Berkshire shares.

In June, however, Buffett did not buy back any shares of either class of stock for the first time since May 2022. In addition, share buybacks for the entire quarter amounted to a measly $345 million, the smallest amount since the repurchase authorization was changed in 2018.

Despite the huge sums he has spent buying back Berkshire shares in recent years, Buffett remains very strict about share buybacks. “All share buybacks should be price-sensitive. What makes sense at a discount to enterprise value becomes stupid at a premium,” he wrote in his 2023 letter to shareholders.

This suggests that Buffett doesn’t even think his own company’s stock is a good value right now. With no attractive investment opportunities for the money, Berkshire’s cash and Treasury bond holdings will continue to grow.

What this all means for investors

While Buffett is always optimistic about the American economy over the long term, he doesn’t seem to see many good investment opportunities in the stock market right now. Valuations are stretched and expected future returns don’t look as good as they have in the recent past. Even after the recent pullback, investors may have a hard time finding good value in today’s market. Despite the recent sell-off, the S&P 500 is still trading at about the same level as it did in May.

However, Buffett’s circumstances are quite different from the average investor. He owns a stock portfolio worth about $300 billion and another $277 billion in cash. That’s a huge portfolio to manage, which severely limits Berkshire’s options to a few large-cap stocks or a few large private companies.

The average investor has a number of stocks they could add to their portfolio. Small-cap stocks still look attractive. Or investors could buy a simple broad-based index fund, one of Buffett’s top recommendations for retail investors, and that’s about it.

Investors shouldn’t ignore the warnings woven into Buffett’s recent moves, but it’s also important to consider alternatives. The stock market still appears to be the best way to grow wealth over the long term.