"Stock God" Buffett issues a $300 billion warning! Will you follow?

Buffett is constantly selling stocks. In the past seven quarters, Buffett's stock sales have exceeded purchases each quarter.

The "Oracle of Omaha" made the largest stock sale in history last quarter, reducing his stake in Apple by about half, worth about $73 billion. In the first half of 2024, Buffett's total stock sales amounted to $97 billion, while new stock purchases were only $4.3 billion.

Stock sales are still ongoing. Although the final sales data for the third quarter has not yet been released, documents from the U.S. Securities and Exchange Commission show that Buffett has sold a significant portion of the Bank of America stock held by Berkshire Hathaway. As of September 24, he had sold $9 billion worth of Bank of America stock.

Buffett has stated that part of the reason for selling stocks such as Apple and Bank of America is his belief that after the current tax laws expire at the end of next year, corporate tax rates will increase. Berkshire Hathaway has substantial unrealized capital gains in both of these stocks, which have seen significant price increases since Berkshire Hathaway first bought them between 2016 and 2018.

However, Buffett's selling decision also implies that he believes the trading prices of these stocks are close to or above their intrinsic value. If he believed these stocks were undervalued, he should be willing to pay higher taxes in the future to own an undervalued asset today.

This sentiment also largely explains why Buffett is not as active in buying stocks for his investment portfolio.

Buffett hasn't even bought his favorite stock

In recent years, Buffett's favorite stock has undoubtedly been Berkshire Hathaway's own stock. Since the board updated the share repurchase authorization in 2018, he has been repurchasing company stock. Now, whenever Buffett believes the stock price is below its intrinsic value, he has the opportunity to repurchase.

However, last quarter, his stock repurchase rate was as slow as a snail, totaling only $345 million. In June this year, Buffett didn't buy any stocks. According to Berkshire Hathaway's report in July, Buffett also seems to have not initiated any stock repurchases at the beginning of the third quarter. Considering that Berkshire Hathaway's stock price has mostly been well above the trading levels in June and July, Buffett is unlikely to engage in large-scale repurchases in the third quarter.

Another favorite stock of Buffett's in recent years has been Occidental Petroleum. Since 2019, Buffett has been investing in this oil and gas company, when he acquired $10 billion worth of preferred shares in the company. He later bought 29% of the company's common stock, meaning he has to submit disclosure documents to the U.S. Securities and Exchange Commission for each transaction.

However, there have been no such disclosures since June this year. Despite the stock falling to new lows due to the drop in oil prices, Buffett has still not made a move

Accelerated Cash Accumulation

This quarter, Buffett sold a total of $9 billion worth of stocks from U.S. banks alone, and made few new stock purchases or stock buybacks. Berkshire Hathaway's cash position is rapidly climbing. As of the end of the second quarter, Buffett's holdings of cash and U.S. Treasury bonds had reached $277 billion.

If we include Berkshire Hathaway's core business operating cash flow of about $10 billion, as well as interest income from existing U.S. Treasury bonds, the company's current cash position could easily exceed $300 billion. The only factor that may prevent it from reaching this milestone is the massive stock sales Buffett conducted earlier this year, which are expected to result in a huge tax bill this quarter.

Currently, cash and U.S. Treasury bonds account for nearly 50% of Berkshire Hathaway's investable assets, not including the $169 billion in insurance float available for investment.

Buffett clearly favors safe assets and even dislikes the current valuation of his own company. This is a clear warning to stock investors: there is nothing worth clinging to in the stock market—at least for Berkshire Hathaway's investment portfolio.

Should You Follow Buffett's Lead?

Analysts point out that for most people managing investment portfolios that have not reached $600 billion, steering a large ship is much more difficult than steering a small speedboat. In addition, Buffett also faces the challenge of creating returns for shareholders that exceed market returns. If investors can achieve the same returns by investing in S&P 500 index funds, then what is the point of buying Berkshire Hathaway's stock?

In other words, at current prices, many large-cap stocks within Berkshire Hathaway's investable universe are not attractive to Buffett. This may even include Berkshire Hathaway's own stock. Buffett's recent lack of stock buyback activity at least indicates this.

However, for individual investors, the investment universe is much larger. Small-cap stocks, especially in terms of valuation, are particularly attractive, and in the coming years, they may benefit from the upcoming rate cuts and growth in money supply.

While investors should not ignore Buffett's warning, it is also important to understand its implications. Just because Buffett currently doesn't have many good investment choices doesn't mean a storm is brewing.