Buffett might be a net buyer of stocks over the long term, but not this time.
Berkshire Hathaway (BRK.A 0.37%) (BRK.B 0.64%) Founder and CEO Warren Buffett is rightly regarded as one of the greatest investors of all time. The so-called Oracle of Omaha has been running the company for roughly 60 years and has nearly doubled the average annual return of the S&P 500 over that duration.
Due to the power of compounding, this means that Berkshire has trounced the S&P 500 throughout its history. $1,000 invested in Berkshire in 1964 would be worth more than $40 million today. Even better, Buffett’s success has allowed millions to get rich alongside him, especially those who invested early in his conglomerate.
Image source: The Motley Fool.
Buffett’s Q1 buys and sells
Given his success, reputation, and willingness to share his wisdom, Buffett’s moves are closely followed by investors big and small, and Berkshire reports the stocks it buys and sells each quarter in its 13-F filings. So you might be surprised to see what Buffett’s firm was doing even when the stock market was hitting record highs in the first quarter.
In the first quarter, Berkshire bought three stocks. The chart below shows what stocks and how much the Buffett-led conglomerate purchased.
| Stock | Shares purchased | Market value of purchase at end of Q1 |
|---|---|---|
| Chubb | 5,823,840 | $1,509,131,659 |
| Liberty SiriusXM Radio | 26,794,606 | $796,067,744 |
| Occidental Petroleum | 4,302,324 | $279,608,037 |
Source: Whalewisdom and Yahoo! Finance
Berkshire spent nearly $2.6 billion on stock buys in the first quarter, with the vast majority going to Chubb, the insurance giant that was revealed to be the mystery stock Berkshire first bought in the third quarter of 2023. Buffett is a longtime fan of the insurance sector, so the purchase of a top player shouldn’t come as a huge surprise.
The other two stocks Berkshire bought were additions to existing holdings, and in two sectors, media and energy, that Buffett has historically favored as well.
Berkshire also sold six stocks in the quarter:
| Stock | Shares sold | Market value of sale at end of Q1 |
|---|---|---|
| Apple | 116,191,550 | $19,897,780,937 |
| Paramount Global | 55,790,726 | $656,656,845 |
| HP | 22,852,715 | $690,609,047 |
| SiriusXM Radio | 3,561,146 | $13,674,801 |
| Chevron | 3,113,119 | $486,114,663 |
| Louisiana-Pacific | 446,962 | $37,397,310 |
Source: Whalewisdom and Yahoo! Finance
As you can see from the chart above, Berkshire sold more than $21 billion worth of stock, the vast majority of it being shares of Apple, which is Berkshire’s biggest holding.
In a CNBC interview, Buffett suggested that the main reason for the Apple stock sale was for tax reasons, as Berkshire has considerable capital gains and there’s a chance that the capital gains tax rate will go up soon. However, there could be other reasons Berkshire sold Apple.
Buffett’s hidden warning on the stock market
As you can see from the numbers, Berkshire decreased its exposure to the stock market substantially in the first quarter, with net sales of roughly $14 billion in stocks, or about 4% of its total stock investments.
Buffett has said before that he is a “net buyer of stocks over time,” meaning that he intends to accumulate stocks rather than unload them, and for that reason, he often says he wants stock prices to fall.
However, by selling stocks in the first quarter, Buffett is sending the opposite signal, that he perhaps believes that stocks are overvalued and that he’d rather pull back and reduce his exposure right now.
What it means for investors
Even if you’re Buffett’s biggest fan, blindly following his every move probably isn’t the best strategy for you. After all, different investors have different goals, and Buffett, who is managing a company worth nearly $1 trillion, seems to believe it’s worth sacrificing some of the upside potential in Apple stock in order to hedge the risk of capital gains rates going up.
You probably have different priorities with your investments, and if they’re mostly in a retirement account, then you don’t have to worry about capital gains.
However, Buffett has complained from time to time of stocks being overvalued, and so it wouldn’t be surprising if he felt the same way now, as the S&P 500 is back at an all-time high despite lingering fears of a recession. The Berkshire chief notably sat out the dot-com boom and was proven right when the bubble burst. Some investors believe that AI stocks are driving a similar bubble in the market today.
It’s also notable that Buffett didn’t take the proceeds from the Apple sale and invest them in an S&P 500 ETF or something similar. Instead, Berkshire seems to have parked those funds in Treasury bills as its Treasury holdings increased by $24 billion to $153.4 billion.
We don’t know for sure that Buffett thinks stocks are overvalued, but the decision to put that money in Treasuries rather than stocks is telling. Thus far, stocks have continued to march higher in the second quarter. Buffett isn’t always right, but acolytes of the Oracle of Omaha shouldn’t ignore his hesitation to buy new stocks as it could be a sign that prices are too inflated.