Warren Buffett is cashing in stocks like Apple because he knows the good times won't last — but he'll spend big once disaster strikes, a veteran strategist says.
"He is selling out of one of the most overvalued stock markets in history at the 'high' and once there is a serious correction or recession, I am sure he will, as he always does, start redeploying those assets back into the market at much lower prices," Paul Dietrich told Business Insider.
B. Riley Wealth Management's chief investment strategist was referring to Buffett's Berkshire Hathaway selling more than $17 billion of stocks on a net basis last quarter — its biggest three-month disposal in years.
Berkshire offloaded 13% of its monster stake in Apple, which accounted for virtually all the sales.
The conglomerate's disposals fueled a $21 billion increase in its stack of cash and Treasurys to a record $189 billion. Buffett predicted the money mountain would exceed $200 billion by the end of June.
The famed investor sees no problem holding that much cash given the backdrop, he said during Berkshire's annual shareholder meeting on May 4: "When I look at the alternative of what's available, in the equity markets, and I look at the composition of what's going on in the world, we find it quite attractive."
Dietrich told BI that he's been a Berkshire investor for more than 30 years, and most of his client portfolios contain Berkshire stock. He's also read all of Buffett's annual reports and many articles and books about him.
Dietrich underscored that as a value investor, Buffett prizes underpriced assets and avoids expensive ones.
"He is doing what he always tells other investors to do," he said."It is the advice your grandmother gave you as a little boy:'Buy low and sell high.'"
"You don't need to be a brain surgeon to know the last few months were the right time to sell out of the stock market and get out at the 'high'."
High prices and other sellers
The benchmark S&P 500 stock index has surged by 26% in the past 12 months, and 73% since the start of 2020, to trade at a record level. Apple, which remains Buffett's largest stock holding by far, has more than tripled in value since he finished building the position in 2018.
Dietrich pointed out that several of the world's wealthiest stockholders — including Amazon's Jeff Bezos, JPMorgan's Jamie Dimon, Meta's Mark Zuckerberg, and the heirs to the Walmart fortune — have sold shares in their companies in recent months, signaling they believe it's a good time to cash out.
Buffett may be getting out while the going's good, but he'll be ready to pile back in when everyone else is fleeing, Dietrich said.
The investor has repeatedly underscored the value of a huge cash reserve, not just to weather tough times but also to strike deals on attractive terms and scoop up cut-price assets during downturns.
Buffett famously struck lucrative deals with a raft of companies during the Great Recession including Goldman Sachs, General Electric, Mars, Harley-Davidson, and Dow Chemical.
It's worth noting that Dietrich has been warning about a devastating downturn for a while, yet the stock market and economy have defied his and other commentators' dire forecasts for years now.
FAQs
It was recently reported that Buffett is strategically trimming down his positions in certain stocks, possibly in response to changing market conditions or valuations that no longer align with his investment principles.
What are Warren Buffett's 5 rules of investing? ›
A: Five rules drawn from Warren Buffett's wisdom for potentially building wealth include investing for the long term, staying informed, maintaining a competitive advantage, focusing on quality, and managing risk.
What does Warren Buffett say about investing in the stock market? ›
He believes that the most important quality for an investor is temperament, not intellect. A successful investor doesn't focus on being with or against the crowd. The stock market will experience swings but Buffett stays focused on his goals in good times and bad.
What does Warren Buffett look at when buying stocks? ›
Buffett follows the Benjamin Graham school of value investing which looks for securities with prices that are unjustifiably low based on their intrinsic worth. Buffett looks at companies as a whole rather than focusing on the supply-and-demand intricacies of the stock market.
How much of Bank of America is owned by Warren Buffett? ›
Warren Buffett speaks during the Berkshire Hathaway Annual Shareholders Meeting in Omaha, Nebraska on May 4, 2024. Warren Buffett's Berkshire Hathaway offloaded another chunk of Bank of America shares, bringing its total sales to more than $7 billion since mid-July and reducing its stake to 11%.
What is the most expensive stock in the world? ›
Berkshire Hathaway Inc.: Are you amazed to see Warrant Buffet's company at the top of the list of most expensive stock? Yes, this consumer goods conglomerate is the world's most expensive stock, which has a current market price of US$ 630500.
Why did Warren Buffett sell Apple? ›
Warren Buffett partially sold his Apple shares, citing high valuations despite the company's robust profitability. Apple was a bargain in 2016 but has become much more expensive.
What is the Buffett Rule number 1? ›
Warren Buffett once said, “The first rule of an investment is don't lose [money]. And the second rule of an investment is don't forget the first rule. And that's all the rules there are.”
What is Warren Buffett's golden rule? ›
Title: The Essence of Warren Buffett's Golden Rule: Never Lose Money.
What stock does Warren Buffett recommend? ›
Although old-guard favorites such as American Express (AXP) and Coca-Cola (KO) still form the core of the portfolio, Buffett & Co. have taken a shine to names such as Apple (AAPL) and Amazon.com (AMZN), and even to lesser-known firms such as Nu Holdings (NU).
His early life set the foundation for his future achievements. By age 21, Buffett's net worth was nearly $20,000, and by 26, it had grown to $140,000. By age 30, his net worth had grown to $1 million, a significant sum compared to the average family income in the U.S. at that time, which was around $5,600 per year.
What did Warren Buffett tell his wife to invest in? ›
Buffett on how to invest his wife's inheritance after he dies — and it's not Berkshire Hathaway. Buffett said he revises his will every three years, and he still advises his wife to allocate 10% of her inheritance to short-term government bonds and 90% to a low-cost S&P 500 index fund.
What stocks did Warren Buffett recently sell? ›
Stocks Warren Buffett recently sold
In the second quarter of 2024, Berkshire completely exited its positions in Snowflake (SNOW) and Paramount Global (PARA). Buffett also sold roughly half of Berkshire's stake in Apple in the second quarter. Since mid-July, Berkshire has sold nearly $7 billion of Bank of America stock.
What is the point of owning Berkshire Hathaway stock? ›
Berkshire Hathaway takes profit from its insurance company holdings and invests them in a portfolio of about 50 different stocks valued at around $380 billion. The company's wide range of products and brands makes it one of the most consistent stocks on the market today.
Why did Buffett sell Bank of America? ›
Due to poor balance sheet management, Bank of America loaded up on low-yielding securities before interest rates began to rise two years ago, and many of those bonds are now underwater. At the end of the second quarter, the bank had a more than $850 billion securities portfolio with a blended yield of less than 3%.
How much Bank of America stock did Berkshire Hathaway sell? ›
It's a great endorsem*nt to be in Berkshire's portfolio. But it can also attract some unwanted attention if Buffett and Berkshire start to sell a stock. That's the position Bank of America (NYSE: BAC) has found itself in after the conglomerate unloaded more than $7.2 billion of the stock over the past two months.
