Any big move Warren Buffett makes can make a front-page headline, and the investment community was in an uproar this weekend with the news that Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) almost half sold =are Apple shares in the second quarter. That came on the heels of other major portfolio sales.
Let’s take a look at what’s happening and why Buffett might be a seller right now.
Is Buffett Done With Apple?
At first glance, you might think Buffett might have lost some of Apple, but when you look at the broader context, you see a different story. Even after the sale, Apple remains by far the largest equity holding in Berkshire Hathaway’s portfolio.
Buffett also made waves earlier this year with the sale of Apple shares, reducing his Apple stake from 49% of the portfolio to 44%. At recent prices, that’s down to about 28%.
Although he has reduced his stake, Buffett speaks highly of Apple. At Berkshire Hathaway’s annual shareholder meeting in May, he said he expected it to remain in his portfolio and said it was an even better company than two other longtime favorites, American Express And Coca Cola.
This stock sale appears to be less about Apple and more about something else.
Buffett has also sold other stocks
Buffett also caused a stir in recent weeks when he received news that he had sold some of his shares. Bank of America shares in stages, too. In July, he sold $2.3 billion of BofA stock in six days. Bank of America is still the second-largest holding in Berkshire Hathaway’s portfolio, accounting for 11.7% of the total. He clearly still feels good about the bank, having divested completely from positions in other banks in recent years.
One stock he continues to buy is Berkshire Hathaway. The company spent nearly $2.6 billion buying back shares in the first quarter, continuing a pattern of investing in itself.
Stay informed about interest rates
Armchair analysts aren’t sure why Buffett is selling stocks, or these stocks specifically. He hasn’t said anything about it publicly. But he did say some things recently that could give investors clues. At Berkshire Hathaway’s annual meeting, he said:
Unless something dramatic happens that really changes our capital allocation strategy, we’ll have Apple as our largest investment, but I don’t mind at all, under the current circumstances, building up the cash position. I think when I look at the alternative of what’s available, the equity markets, and I look at the composition of what’s happening in the world, we find it quite attractive.
Berkshire Hathaway can make an attractive return on the huge cash reserves it holds via short-term government bonds without exposing itself to risk. Combine that with a volatile stock market and it makes a lot of sense to hold cash now.
But there is another reason.
Ready to strike?
Buffett looks for undervalued stocks that the market might be missing (among other characteristics). But he’s patient, and if there’s nothing that meets his investment criteria, he doesn’t buy. At the annual meeting, he said, “There have been times in my life when I’ve been overwhelmed with so many opportunities that I could have invested everything by the evening.” But not lately: “We haven’t seen anything that makes sense and moves the needle.”
Does this signal a bigger warning for the markets? Not necessarily. Holding on to cash is a good reason to hold on and wait for attractive opportunities. Even without high interest rates, Buffett has suggested that he won’t buy stocks if the value proposition isn’t strong enough.
Could it be a warning sign for the markets? It could be, because it indicates that stocks are too expensive right now. Markets are likely to correct if valuations get too high. It’s a cycle that keeps repeating itself. So while it could be a signal of an impending correction, or even something worse than a correction, it’s not a signal to panic sell or worry.
As always, investors can learn from Buffett’s wisdom and investment approach. But you have to remember that Buffett runs a publicly traded holding company, and that means his strategy will differ from that of the average investor. You can buy Berkshire Hathaway stock to benefit from his direct management, but for your personal portfolio, you’ll follow his general advice rather than his specific moves.
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American Express is an advertising partner of The Ascent, a Motley Fool company. Bank of America is an advertising partner of The Ascent, a Motley Fool company. Jennifer Saibil has positions in American Express and Apple. The Motley Fool has positions in and recommends Apple, Bank of America, and Berkshire Hathaway. The Motley Fool has a disclosure policy.
Warren Buffett Is Selling Stocks. Here’s the Hidden Reason Why was originally published by The Motley Fool
