In the year 2024, Warren Buffett marked a questionable milestone, issuing a stark caution for Wall Street.
Wall Street's biggest drawcard isn't just any billionaire money manager – it's Warren Buffett, the Oracle of Omaha, who consistently surpasses the broad-market S&P 500 by a substantial margin. Since assuming the CEO role at Berkshire Hathaway roughly six decades ago, Buffet's delivered a staggering return of nearly 5,700,000% for Class A shareholders, making Berkshire Hathaway's performance overshadow that of the S&P 500's.
Despite his legendary status, Buffett isn't infallible. He's still just another investor with his share of ups and downs. Yet, his knack for spotting hidden gems and his candid approach make him an invaluable pillar of advice in the investment world.
One of Buffett's go-to company picks that's conspicuously absent from Berkshire Hathaway's quarterly Form 13F filings with the SEC is Apple – Berkshire's top investment holding. Ironically, Buffett has spent more money buying shares of Berkshire than any other stock, thanks to his company's unique share repurchase rules.
While Berkshire has purchased 44 stocks with a $297 billion portfolio, Apple is Buffett's all-time favorite. His company's stock never dipped below the required 120% of book value for buybacks, until July 2018. After then, Buffett managed to repurchase shares for 24 consecutive quarters, with a cumulative total of $78 billion – until a valuation obstacle halted these historic buybacks in the September-ended quarter.
Valuation, not cash, emerged as the issue. Berkshire's price-to-book value exceeded 170% for the first time since 2008, well beyond the ardent value investor's comfort zone. Warner Buffett, the man who coined the "Buffett Indicator" (the ratio of a market's total capitalization to its GDP), doesn't believe in market timing, but his stagestruck approach to this long-term measure suggests a possible shift in his strategy.
This isn't the only warning that valuations are at an all-time high. Since July 2020, Buffalo and his top advisors have net sold $166.2 billion worth of stocks, according to Berkshire's cash flow statements. Speculations surrounding benign catalysts like tax advantages, increased unrealized gains, and diminished emotional attachment to Apple and Bank of America stocks are being encouraged.
However, this constant selling could point to a more ominous reason. Since 1871, the S&P 500's cyclically adjusted price-to-earnings ratio (CAPE Ratio) has reached its third-highest level during a bull market rally. This metric has only been higher on five other occasions, all of which led to a downturn for the market.
In his 1996 interview with Fortune, Buffett described the Buffett Indicator as "probably the best single measure of where valuations stand at any given moment." The ratios suggest that value is scarce in today's market, and investors are shelling out substantial sums to secure a piece of the pie.
Despite Buffett's erratic short-term behavior, his long-term optimism remains unwavering. He remains a diehard believer in America and the prosperity it can bring. He and his team have channeled Berkshire's investments and assets to capitalize upon expansive market periods, often lasting over an decade.
So while valuations may hit unprecedented heights, and Buffett's selling spree may seem like a stark warning, it's important to remember his track record and long-term focus.
In the realm of finance, many individuals interested in investing closely follow Warren Buffett's moves, as he has often outperformed the broad-market S&P 500 significantly. Despite his reputation, Buffett continues to invest money wisely, demonstrating both ups and downs in his portfolio.
Regardless of any valuation concerns or his recent selling activity, Warren Buffett remains steadfast in his belief in America's prosperity and long-term market opportunities, using Berkshire Hathaway's resources to capitalize on expansive market periods.
