Did Warren Buffett Just Wave a Red Flag in the Stock Market? This is what his actions mean to you.

Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) Founder and CEO Warren Buffett is rightly considered one of the greatest investors of all time. The so-called Oracle of Omaha has led the company for about sixty years and has nearly doubled the company’s average annual return. S&P500 during that duration.

Due to the power of compounding, this means that Berkshire has beaten the S&P 500 throughout history. The $1,000 invested in Berkshire in 1964 would be worth more than $40 million today. Better yet, Buffett’s success has made millions besides him rich, especially those who invested early in his conglomerate.

Buffett’s Q1 buys and sells

Given his success, reputation and willingness to share his wisdom, Buffett’s moves are closely followed by investors large 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 company did even as the stock market hit record highs in the first quarter.

In the first quarter, Berkshire bought three shares. The chart below shows which stocks and how much the Buffett-led conglomerate has bought.

Source: Whalewisdom and Yahoo! Finances

Berkshire spent nearly $2.6 billion on stock purchases in the first quarter, the vast majority of which went to Chubb, the insurance giant revealed to be the mystery stock Berkshire first bought in the third quarter of 2023. Buffett is a long-time fan of the insurance giant. sector, so the purchase of a top player should not be a big surprise.

The other two stocks Berkshire bought were additions to existing holdings, and in two sectors, media and energy, Buffett has also historically favored.

Berkshire also sold six stocks in the quarter:

Source: Whalewisdom and Yahoo! Finances

As you can see in the chart above, Berkshire sold more than $21 billion worth of stock, the vast majority of which was shares of Apple, Berkshire’s largest holding.

In a CNBC In an interview, Buffett suggested that the main reason for selling Apple shares was for tax reasons, as Berkshire has significant capital gains and there is a chance that the capital gains tax rate will rise soon. However, there may also be other reasons why Berkshire sold Apple.

The story continues

Buffett’s Hidden Warning on the Stock Market

As you can see from the numbers, Berkshire substantially reduced its exposure to the stock market in the first quarter, with net sales of about $14 billion in equities, or about 4% of total equity investments.

Buffett has previously said that he is a “net buyer of stocks over time,” meaning he plans to accumulate shares rather than sell them, and for that reason he often says he wants the stock prices fall.

However, by selling stocks in the first quarter, Buffett is sending the opposite signal: he may think stocks are overvalued and would rather pull out now and reduce his exposure.

What it means for investors

Even if you’re Buffett’s biggest fan, blindly following his every move is probably not the best strategy for you. After all, different investors have different goals, and Buffett, who heads a company worth nearly $1 trillion, seems to believe it’s worth sacrificing some of the upside potential of Apple stock to hedge the risk of rising capital gains.

You probably have other priorities with your investments, and if they’re mostly in a retirement account, you don’t have to worry about capital gains.

However, Buffett has complained from time to time that stocks are overvalued, 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 recession fears. The head of Berkshire notably survived the dot-com boom and was proven right when the bubble burst. Some investors believe that AI stocks are creating a similar bubble in the market today.

It’s also notable that Buffett didn’t invest the proceeds from the Apple sale in an S&P 500 ETF or the like. Instead, Berkshire appears to have parked these funds in government bonds, with its government bond holdings increasing by $24 billion to $153.4 billion.

We’re not sure if Buffett thinks stocks are overvalued, but the decision to put that money into government bonds instead of stocks is telling. So far in the second quarter, shares have continued to rise. Buffett isn’t always right, but followers of the Oracle of Omaha shouldn’t ignore his reluctance to buy new stocks because it could be a sign that prices are too high.

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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Apple, Berkshire Hathaway, Chevron and HP. The Motley Fool recommends Occidental Petroleum. The Motley Fool has a disclosure policy.

Did Warren Buffett Just Wave a Red Flag in the Stock Market? This is what his actions mean to you. was originally published by The Motley Fool