Warren Buffett watchers eagerly anticipate the Berkshire Hathaway (BRK.A +0.93%)(BRK.B +1.13%) quarterly 13F filing, detailing which stocks the holding company bought and sold during the quarter. Buffett rarely talks about the company's specific holdings or what goes into management's investing decisions, although he freely gives over lots of general investing advice. It's up to the Buffett watchers to track Buffett and his investing managers' moves and glean whatever they can.
There have been some telling signs in Berkshire Hathaway's trades over the past two years, and the recent 13F confirms some ideas about what Buffett might be thinking today.
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Key Data Points
Buy the market or beat the market?
Berkshire Hathaway made several moves in the 2024 fourth quarter. Most of them were sales, although there were some additions and a new position in Constellation Brands. It completely sold out of its position in Ulta Beauty, and the big surprise was that it also sold off its two exchange-traded funds (ETFs): the Vanguard S&P 500 ETF (VOO 0.13%) and the SPDR S&P 500 Trust (SPY 0.14%).
This might seem surprising to investors who have heard Buffett frequently recommend buying these kinds of ETFs that track the market. He has said several times over the years that most investors should invest in the market, and that he expects to put 90% of whatever he leaves his wife after his death into such a fund.
However, there are several caveats I would add to what he's said in the past. The first is that he has given this advice for non-professionals. Most individual investors have day jobs, and they're not analyzing stocks all day (hopefully). This is Buffett's day job. So it's not a "not for me but for thee" kind of attitude. It's his professional advice for non-professionals. As an institutional investor, he aims to safely invest money for people who invest in his company, and that strategy might look different than for the individual investor.
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Second, Berkshire Hathaway only opened these positions in 2019, even though Buffett's been directing the portfolio since 1965. For whatever reason that he hasn't shared, having these positions made sense over the past few years but doesn't anymore. I'll make some conjecture about why in a minute.
Finally, these positions never made up a significant portion of Berkshire Hathaway's portfolio, accounting for less than 0.01% of the total portfolio. It was clearly never meant to be a substantial part of the equity portfolio.
Greed is not good
Berkshire Hathaway has been building up its cash position to its highest-ever levels over the past two years, and that sends some clear messages about what Buffett's thinking about the market. Combined with his net sales of stocks, he seems to think there aren't so many great deals to be had in the market.
Buffett buys stocks only when he thinks there's a great company with an undervalued stock. The emphasis is on "great company," but the price is also important. He has said that it's better to buy a great stock at a fair price than a fair stock at a great price. But price is still important.
Another famous quote is that he tries "to be fearful when others are greedy and to be greedy only when others are fearful." Today's market falls into the "fearful when others are greedy" camp, with valuations starting to look extremely expensive. If you know anything about Buffett, pulling out of some positions is perfectly in line with his investing approach.
There are some strong indications here that Buffett thinks the market is overpriced. A further implication is that it might be due for some kind of correction. He hasn't said this straight out, and there's no guarantee of what might happen next. But what is guaranteed is that there will be a correction at some point, because there are always ups and downs in the market.
When Buffett bought these ETFs, the market wasn't looking expensive. It could be that it made sense to invest in the market as a hedge since he strongly believes in the market. At the current valuation, Buffett might have other uses for that money, in an institutional investor kind of way.
I don't think that anyone who owns a market-tracking ETF should sell shares immediately, and I don't imagine Buffett would recommend doing so. If you own one, let it follow the ups and downs of the market over time. If you believe in the stock market, it's an excellent way to benefit while minimizing your risk.
