From 1957 to 1968, Buffett Partnership Ltd. averaged an annual return of 31.6%, compared with a 9.1% return for the Dow Jones Industrial Average. He then merged BPL into Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B), which he took over in 1965. Since then, Berkshire Hathaway's stock has grown an average of 19.8% annually, compared with a 10.2% return for the S&P 500 through 2023.
Warren Buffett. Photo: The Motley Fool
Buffett has made several big decisions about Berkshire's portfolio recently, sending a sobering warning to stock investors: The stock market is no longer a great place to be.
By the third quarter, Buffett had accumulated nearly $300 billion in cash and government bonds, a record for Berkshire. So what led to this, and what does it mean for investors?
For seven straight quarters, Buffett has sold more stocks than he bought. In the most recent quarter, he made the largest stock sale in history, cutting Berkshire’s position in Apple (NASDAQ: AAPL) in half, or about $73 billion. The total value of stocks sold in the first half of 2024 was $97 billion, while Buffett spent just $4.3 billion to add more.
The sell-off continues, and while official Q3 numbers are not yet available, filings with the U.S. Securities and Exchange Commission (SEC) show that Buffett has sold a large portion of Berkshire's stake in Bank of America (NYSE: BAC). As of September 24, he had sold $9 billion worth of stock.
Buffett said he sold some of his holdings in stocks like Apple and Bank of America because he was worried about higher corporate taxes after the current tax law expires at the end of next year. Berkshire is sitting on a huge amount of unrealized profits from these two stocks, which have risen sharply since Berkshire started buying them (2016-2018).
However, Buffett's selling of stocks also implies that he believes the stocks are trading near or above their intrinsic value. If he believes they are undervalued, Buffett will be willing to pay higher taxes later to hold assets that are worth less now.
One of Buffett's favorite stocks in recent years has been Berkshire Hathaway. Since Berkshire's board updated its stock repurchase rights in 2018, Buffett has been buying back shares whenever he feels the price is below their intrinsic value.
But the pace of buybacks slowed significantly last quarter, totaling just $345 million. Buffett decided not to buy any more shares in June, and it appears he didn’t buy back any shares at the start of the third quarter, based on Berkshire’s July report.
Another stock Buffett has favored in recent years is Occidental Petroleum (NYSE: OXY). He invested $10 billion in preferred stock in 2019 and then bought another 29% of the company’s common stock. However, there have been no reports of Buffett buying more Occidental shares since June, despite the stock’s steep decline in oil prices.
With $9 billion in proceeds from the sale of Bank of America stock during the quarter and very little capital invested in new stocks, Berkshire’s cash pile is growing rapidly. At the end of the second quarter, Buffett had $277 billion in cash and bonds.
When factoring in Berkshire’s roughly $10 billion in operating cash flow from its core operations, along with the interest earned on its bond holdings, Berkshire’s cash position could easily top $300 billion. One factor that could prevent that from happening is the company’s expected tax bill from its large stock sales earlier this year.
Berkshire’s cash and bonds currently account for nearly 50% of its investable assets. That’s not counting the $169 billion in insurance it can invest.
Buffett’s moves show that he is leaning toward safe assets and is unhappy with the valuation of the entire market, including Berkshire Hathaway’s stock price. This sends a clear message to investors: There are not many worthwhile opportunities in the stock market right now, at least in Berkshire’s portfolio.
Most individuals, however, do not have to manage a $600 billion portfolio as large as Buffett. Navigating a giant ship of that size is much more difficult than steering a small speedboat. Buffett also faces the challenge of generating market-beating returns for Berkshire shareholders. If investors can get similar returns from an S&P 500 index fund, is buying Berkshire Hathaway stock still worth it?
The reality is that many of the large-cap stocks that Berkshire has long targeted are not attractive right now. That may include Berkshire Hathaway stock. Buffett’s recent lack of share repurchases may indicate this.
For individual investors, the opportunities are still greater. Smaller stocks look more attractive in terms of valuations and could benefit from interest rate cuts and money supply growth over the next few years.
While Buffett's warning should not be ignored, retail investors still have many options for investing effectively in the stock market.
Dung Phan (According to MSN)
Source: https://www.congluan.vn/loi-canh-bao-tri-gia-300-ty-usd-cua-ty-phu-warren-buffett-den-cac-nha-dau-tu-post314736.html
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