Warren Buffett is Selling Stocks--Should we?
Summary
TLDRIn the latest financial move by Berkshire Hathaway, Warren Buffett has significantly increased the company's cash reserves to $277 billion by selling off a considerable portion of their Apple stock, approximately 50%. This action has sparked discussions on whether this is a strategic move due to potential future tax increases, market valuations, or simply capital management. While the exact reasons remain speculative, the video explores Buffett's possible motivations and advises viewers on asset allocation, cash reserves, and rebalancing strategies in response to high market valuations, without suggesting panic selling.
Takeaways
- 📈 Berkshire Hathaway has filed a Form 10-Q, revealing that Warren Buffett has been selling a significant amount of stock, leading to an increase in cash reserves to $277 billion.
- 🍎 Warren Buffett sold about 50% of Berkshire Hathaway's stake in Apple, which was one of their largest holdings, although the exact reasons for this move are not publicly disclosed.
- 📊 The Form 13F, which will be filed in the coming days, will provide more detailed information about Berkshire Hathaway's stock holdings, including recent sales.
- 💡 Buffett may have sold Apple shares due to tax considerations, capital management, high market valuations, or the need for cash for Berkshire Hathaway's operations.
- 🤔 While Buffett's actions can provide some insight, the exact motivations behind his decisions are speculative and not officially stated.
- 📉 The speaker of the video does not plan to sell their Apple stock, viewing Buffett's actions as not indicative of a problem with the company itself.
- 🧘 The speaker emphasizes the importance of maintaining one's own investment strategy and not overreacting to the actions of high-profile investors like Buffett.
- 🔄 The speaker suggests that high stock valuations might be a good time for rebalancing portfolios and considering asset allocation adjustments.
- 💼 The speaker is ensuring they have sufficient cash on hand for upcoming expenses and is not making any immediate changes to their investment strategy.
- 🤝 The speaker has already made charitable contributions using Apple stock earlier in the year when the stock was at a good price.
- 🌪 The speaker anticipates potential market difficulties in the future but is not making any preemptive moves based on this expectation.
Q & A
What is a Form 10-Q and why is it significant for investors?
-A Form 10-Q is a quarterly financial report filed by companies with the Securities and Exchange Commission (SEC). It is significant for investors as it provides insights into a company's financial health and activities, including details on stock holdings and cash levels, which can influence investment decisions.
Why did Warren Buffett's Berkshire Hathaway sell a significant amount of its Apple stock?
-While the exact reasons are not publicly disclosed, the transcript suggests possible motivations such as taking advantage of current low tax rates, managing capital, and adjusting to high market valuations. Buffett has previously indicated that sometimes it's necessary to sell shares, even in great companies like Apple.
What is the current cash level of Berkshire Hathaway as mentioned in the transcript?
-According to the transcript, Berkshire Hathaway has raised its cash level to $277 billion.
What is the significance of the Schiller PE ratio mentioned in the video?
-The Schiller PE ratio, or Cyclically Adjusted Price-to-Earnings ratio, is a valuation measure that smooths out short-term fluctuations and provides a long-term perspective on market valuation. A high ratio, as mentioned in the transcript, can indicate that stocks are overvalued relative to historical averages.
What does the speaker suggest might be Warren Buffett's strategy regarding tax rates and selling stocks?
-The speaker speculates that Warren Buffett might be selling stocks now to take advantage of the current relatively low tax rates, possibly anticipating that these rates may increase in the future.
What is the speaker's personal stance on Berkshire Hathaway's sale of Apple stock?
-The speaker does not plan to sell any of their Apple stock in response to Berkshire Hathaway's actions, believing that Buffett's sale is not an indication of a problem with Apple as a company.
What is the speaker's approach to asset allocation given the current high stock valuations?
-The speaker maintains their asset allocation, which is generally around 75% stocks and 25% bonds, and ensures they are within a comfortable range rather than at the top due to high stock valuations. They are also mindful of rebalancing their portfolio if necessary.
How does the speaker view the current stock market trend and its potential future?
-The speaker acknowledges that the stock market has been on an upward trend since the Great Recession and notes that while they do not predict an imminent downturn, they believe it is likely that a recession and market difficulties will occur at some point in the not too distant future.
What actions is the speaker taking in response to the current financial news from Berkshire Hathaway?
-The speaker is not making significant changes to their investment strategy but is ensuring that their asset allocation is where they want it to be, they have sufficient cash on hand for upcoming expenses, and they are considering charitable contributions.
Why might a company like Berkshire Hathaway hold a large amount of cash?
-Holding a large amount of cash can be strategic for a company with diverse operations like Berkshire Hathaway, as it can be used for potential investments, to cover operating expenses, or to take advantage of market opportunities that may arise.
Outlines
📉 Warren Buffett's Stock Sales and Berkshire's Cash Reserves
In this paragraph, the video discusses Berkshire Hathaway's recent financial moves as revealed in their Form 10-Q filing with the SEC. It highlights Warren Buffett's significant selling of stocks, particularly a large portion of Berkshire's stake in Apple, resulting in an increase in cash reserves to an unprecedented level of $277 billion. The video aims to dissect Buffett's actions, speculate on his motivations, and address the question of whether viewers should follow suit by selling stocks and accumulating cash. The paragraph also mentions the CNBC report on Berkshire's cash level and the potential upcoming Form 13F filing for more detailed stockholding information.
🤔 Speculating on Buffett's Strategy and Tax Considerations
This section delves into possible reasons behind Warren Buffett's stock sales, emphasizing that while definitive answers are not available, some educated guesses can be made. It references Buffett's comments during the annual Berkshire meeting about the possibility of Apple being a 'forever company' and touches on tax implications as a potential motivation for selling stocks now instead of in the future when tax rates might be higher. The discussion also considers the size of Berkshire's Apple stake and the current high market valuations, suggesting that Berkshire might be managing its capital and reducing exposure to a single stock, despite Apple's strong performance.
🚫 Personal Decision on Stock Holdings Amidst Market Volatility
The speaker shares his personal stance on not selling his Apple stock or making significant changes to his investment strategy in response to Buffett's actions. He explains that he views Apple as a strong company and sees no immediate need to sell, despite its high valuation. The paragraph also addresses the general comfort many investors have with the consistent performance of the stock market since the Great Recession, cautioning against complacency and emphasizing the importance of regularly reviewing and rebalancing one's asset allocation to ensure it aligns with personal financial goals and risk tolerance.
💼 Planning for Market Downturns and Cash Management
In the final paragraph, the focus shifts to the speaker's own financial planning, including maintaining sufficient cash for upcoming expenses and considering charitable contributions during times of high stock valuations. He also discusses the likelihood of a market downturn in the future, referencing the unusually long period without a recession and the high Schiller PE ratio as indicators of potential economic challenges ahead. Despite this, the speaker is not prompted to sell his stocks but rather to ensure that his financial plans are in order, asset allocation is appropriate, and cash reserves are sufficient for his needs.
Mindmap
Keywords
💡Form 10-Q
💡Warren Buffett
💡Berkshire Hathaway
💡Stock Sales
💡Cash Position
💡Apple Inc.
💡Asset Allocation
💡Tax Considerations
💡Valuation
💡Recession
💡Financial Freedom
Highlights
Berkshire Hathaway filed a Form 10-Q with the SEC, revealing their quarterly financial reports.
Warren Buffett, on behalf of Berkshire Hathaway, has been selling a significant amount of stock, resulting in a higher cash position.
Berkshire Hathaway now holds more cash than ever, with a level of $277 billion.
Approximately 50% of Berkshire Hathaway's stake in Apple was sold.
The Form 13F will provide more details about Berkshire Hathaway's stockholdings, expected to be filed soon after June 30th.
Berkshire Hathaway's largest holdings as of the end of last year were American Express, Apple, Bank of America, Coca-Cola, and Chevron.
Apple's stake reduction from $174 billion to $84.2 billion indicates substantial share selling.
Berkshire Hathaway has also been selling a significant amount of Bank of America stock.
Warren Buffett's reasoning for selling is speculative, as no official statement has been made public.
Buffett mentioned the possibility of future tax rate increases during the annual meeting, hinting at a strategic move to sell stocks now.
Apple was considered a 'great company' by Buffett, with the sale not necessarily indicating a problem with the company itself.
The current high market valuations and potential economic indicators of a recession may have influenced Berkshire Hathaway's decision to sell stocks and hold cash.
The speaker is not selling their Apple stock despite Berkshire Hathaway's large sale, due to continued confidence in the company.
The speaker emphasizes the importance of regularly reviewing and rebalancing one's asset allocation, especially in times of high stock valuations.
The speaker suggests that while a difficult market may be ahead, it's crucial to ensure one's investment strategy aligns with personal financial goals and risk tolerance.
The speaker has already made charitable contributions earlier in the year when Apple's stock price was favorable.
Transcripts
earlier today birkshire Hathaway filed
what's called a form 10 Q with the
Securities and Exchange Commission
that's their quarterly Financial reports
and in it we learned a couple of
interesting things one Warren Buffett on
behalf of Berkshire hathway has been
selling some stock a lot of stock and
they've now got more cash than ever and
so in this video what I thought I'd do
is first sort of show you what happened
what Warren Buffett has been up to in
terms of selling stock and one could
even say hoarding cash uh so what's
going on there two we're going to try to
understand maybe why he's doing it to
the extent you know that's possible but
then three maybe more importantly we'll
try to answer the question what should
we do should we be selling our stocks or
our index funds and piling up with cash
that's the three things we're going to
try to accomplish in today's video Let's
Dive Right In let me first show you the
the headline this is from
CNBC and they've even got up here in red
Warren Buffett raises birkshire cash
level 277 billion that's a big number
and uh one of the big things he sold he
sold about
50% of birkar Hathaway's stake in apple
now as longtime viewers of this channel
know I too own Apple it's my single
largest holding uh and I also full
disclosure I also own shares of
birkshire those are the only two
individual companies that I own
everything else we have are in in
different kinds of index funds and
whatnot uh but we do own apple and birk
birkar and he sold nearly half his Stak
in apple now he had sold a a big chunk
of Apple not nearly that big but he'
sold a big chunk of Apple earlier in the
year and it was actually a subject of
discussion during the birkshire uh
annual meeting in Omaha and we'll
actually come back to that in a minute
so where does this information come from
in terms of what he sold
well eventually they'll file what's
called a form
13f it's due I believe 4 2 days after
the last quarter six which would been
June 30th so maybe in the next week or
so we might see the 13f which gives you
more details about a a company's
stockholdings but there's information in
the in the 10 q that shows us uh at
least to some extent what's going on on
and I can show you that here and I'll
leave links to all of this below the
video so this is their uh their 10q that
they file and uh what we want to look at
is actually on page I believe it's page
nine
maybe hope oh here we that's eight here
we go you got to go to the footnotes
this is note five and this is
investments in equity Securities this is
for June 30th is of this year so this
the that was when their their quarter
ended just I guess a little over a month
ago and but you also see numbers from
the end of last year and here we can see
at the end of last year we'll start
there they mentioned their five right
here in this footnote or asterisk the
five
uh companies that that they had the most
in American Express Apple Bank of
America Coca-Cola and Chevron those were
the their five largest Holdings and we
can see with Apple at that time right
here
174.000 billion now that was the end of
of last year now you fast forward to the
end of June and that stake is down to
84.2 two billion now of
course Apple's been up this year I think
about
14% but clear clearly you had to sell a
lot of shares to go from 174 billion
down to 84 billion now it's U still
their largest single holding uh but yes
they sold a a a truckload of Apple stock
and this isn't reflected in this 10 10q
I don't believe but more recently news
has been that that berkshire's been
selling a lot of their Bank of America
stock as well and then if we go back to
the news article I showed you just a
second ago all of this results in a big
pile of cash so they've got as you can
see here
277 billion in cash so that's kind of
what happened now the next question is
can we figure out why and the short
answer to that I think this is really
important is no we can't I mean we can
we can speculate which is what I'm going
to do but they don't you know uh
Berkshire hathway and Warren Buffett
typically don't say here's why we're
doing what we're doing and so there's
been no public announcement or release
that I'm aware of or statement by birkar
or Mr Buffett to say here's why we're
selling Bank of America stock lately
here's why we sold half our steak and
apple in the last quarter so it really
is speculation but we we do know a few
things uh that aren't speculation first
of all we know from the the the annual
meeting this past year because he was
asked about this uh he said apple is a
great company in fact you know one of
the questions was hey you've often said
that American Express and cocaa Cola are
two of your Forever companies you're not
going to sell them and why isn't Apple
in that group and he had a great uh
response to it in fact I'll dig up that
video and I'll leave a link to it below
this video uh but what he said was look
uh MX Coca-Cola great companies he he
described apple he said Apple an even
better company but sometimes you know
you need to sell some shares and one of
the things he he said in that answer he
talked about tax
and he said right now uh Berkshire when
it sells stock and has to recognize a
gain it pays federal income tax uh to
the tune of
21% but what he noted was that's
actually down from what it was in the
past I think I think he said at one
point it was 35% at one point it was
somewhere around
50% but he made a point that it's
likely that that tax rate's going to go
up now he didn't predict when of course
we've got tax laws that that that are in
place now that will automatically change
beginning in 2026 unless our government
uh steps in to prevent that and of
course depending on who wins the
election in November whether it's you
and and if either party controls the the
White House and Congress there could be
tax changes but of course we don't know
but his point wasn't I don't think
specific to the election it was more
General that says look we're taking on a
lot of of debt in the United States is
they're going to have to deal with it
eventually somehow and that's likely
going to involve higher taxes at least
for corporations and I think his point
was would you rather pay the 21% now or
a much higher rate later now that at
least opens the possibility that part of
what's motivating uh birkshire Hathaway
and Warren Buffett is to take advantage
of relatively low tax rates and in that
regard it's the same thing you and I
would do right I mean that's exactly
what we try to do uh when we we do a
Roth conversion we're hoping we can pay
lower taxes now rather than higher taxes
later so uh nothing out of the ordinary
there but but I think it could be one of
his motivating factors another
possibility is that Apple was an
extremely large stake now uh you know
Warren Buffett is certainly not afraid
to uh put a lot of chips in one company
uh he's done it in the past so he's not
one to get nervous about that I don't
believe at all but but there could be
some uh part of this that's just
managing the capital of birkshire
Hathaway and that maybe there was a view
that you you know they needed to just
cut back the stock has done extremely
well it's done extremely well for burk's
year it's done extremely well just this
year alone and maybe there was this
sense uh that um you know it was time to
to pull back a little bit and we also
are at really high valuations let me
show you this this is the Schiller PE
ratio and it's been high for a long time
frankly you can see we're at 34 now uh
the mean is
17 it hasn't been by the way 17 I was
looking at this earlier since like 2009
so it's been above average for a very
long time uh and by the way this even
encompasses this big drop right you know
what that is that's Co but even with Co
it was still the lowest it hit was
around 28 well above the average and now
it's back up to 34 and there could be
some indications in the economy that
possibly we're heading towards a a
recession maybe it's not a prediction on
my part but a lot of folks have started
to talk about that giving unemployment
numbers and other things uh that that
folks are seeing and so it may have been
just a desire on the part of of Warren
Buffett and burer to take in some more
cash of course as an operating company
it needs a lot of of cash you know it's
got large Insurance operations for
example it also owns businesses like
utilities and railroads uh that require
a tremendous amount of of of capital to
invest uh in those companies and so
they're going to have a lot of money
even the best of times but when you add
all of this together it seems sensible
to me that they may have wanted to sell
some stocks and it made sense perhaps
for Apple because it was the L by the
largest holding still is the largest
holding by the way but it was the
largest holding uh they'll pay taxes at
a relatively low rate and likely lower
than they may pay in the future of
course no guarantees on that so when you
sort of add all of this up it it seems
to make sense to me that that they've
done what what they've done you know I
think the the fact that they've sold 50%
of Apple can be a bit jarring but you
know they had a large amount of Apple to
begin with and they're still left with a
huge stake in the company all right so
that's kind of maybe what's motivating
birkar and Warren Buffett but of course
that's just you know my best guess so
the big question then is what should we
do well I can tell you what I'm doing
what I'm not doing and why first of all
I'm not selling any of my steak in apple
why I don't I just don't view uh Warren
Buffett's say even of a large part of
berkshire's stake and apple as any
indication that he sees a problem with
the company he said just a couple of
months ago as I mentioned at the
shareholder meeting that it's uh a great
company even better than his long-term
holding uh companies uh American Express
and Coca-Cola I don't see anything
that's changed with apple over the last
couple of months and just generally I
don't see any reason to sell other than
one could argue it's very richly valued
but that's true with just about all
stocks certainly large company stocks in
the United States if I were going to
sell for that reason I guess I'd have to
get rid of all of my my us company index
funds as well and I'm not doing that
either so also I do I will say that I'm
am comfortable holding that stake if if
needed a long time I don't see a need to
to sell the Apple stock anytime soon if
I don't want to if I knew that I had to
sell the next year or so I'd probably
sell now because it's at a very good
price but that's just not the case uh in
our SI situation so I'm not selling my
Apple stock just because Warren Buffett
sold 50% of burk Shear's uh stake that's
number one number two uh I do think that
it's a mistake to get too comfortable
with the way the stock market is
generally
performed uh over the last frankly since
the Great Recession if we go back um and
look at this chart again if if the Great
Recession is here we've had a lot go on
over the last what what what would that
be about 17 years has been that long uh
uh 16 years maybe we've had a lot going
on including covid but the trend and
this is of course the PE but we could
look at a stock chart of say the S&P 500
and you'd see it going up just just like
this as well and during that time except
for a couple of months following covid
we haven't had a recession think about
that we have not had a recession since
the great uh recession you know 15 plus
uh years ago that that is a really long
time to go without a recession uh we've
got stock valuation certainly if we
think of large US company stocks at very
high Val valuations and so one of the
things I'm always doing in those that
circumstance is rethinking my asset
allocation do I want to make changes to
it or more likely do I just want to make
sure I'm rebalancing now in my case I'm
not making any changes to my asset
allocation I'm generally around 75%
stocks 25% bonds by the way the reason I
say generally is because I often think
about that within a range and and
sometimes a large range like in my case
70 to 80 why do I do that it's because I
don't want to rebalance a lot frankly
and so I don't rebalance uh uh a lot and
if it goes from 75 to 77 then down to 73
and then up to 78 and back to 75 I tend
to just let it go uh I'm not going to
trigger rebalancing frequently I just
prefer not to uh but but the point is
when stock valuations are high I am
making sure that it's not drifting up
towards the top of that range now at the
moment it's not my allocation stocks to
bonds and in that all include cash as
part of bonds uh I've got about 72 to
73% uh stocks so I'm sort of on the low
end of my range I like that if I were at
80% I would be rebalancing if I were at
78% I'd probably be rebalancing stocks
are are are are richly priced that's not
a prediction that they're going to go
down tomorrow or next week or next month
or even this year it's just a an
observation they're uh based on
historical terms highly valued and so
I'm going to want to you know at least
at least be in the middle of my range if
not a little bit lower but it turns out
I'm kind of right right where I want to
be and so I'm not making any changes
there but I'd certainly say
particularly since stocks have generally
been up it's a great time to make sure
you know you your stocks haven't gotten
uh beyond what you're comfortable with
in terms of your asset allocation and
rebalancing if it makes sense the other
thing that I'm doing is making sure that
I have all the cash that I need uh for
my expenses and I generally think over
the next year now I'm speaking as
someone who's I'll call myself
semi-retired certainly true if you're
retired as many of the viewers of this
channel are you know if I if I'm going
to need cash over the next 12 months and
I know I'm going to be taking that from
stocks I'm generally going to want to
take it when when I think the markets
are high if I have that option right now
right now you know of course last week
uh the markets were down it was had a
couple of rough days uh but still
generally stocks are up this year and
even apart from what they've done this
year again going back to the Schiller PE
they're pretty richly valued that
doesn't mean they won't go up maybe
they'll go up more this year uh but I
would be very
comfortable uh pulling out uh stocks
that I needed to convert to cash if
that's the case uh as part of my
retirement spending and my retirement
planning and then the other thing I I
like to do when when stocks are sort of
richly valued is uh think about any
charitable contributions I want to make
because we contribute it's generally
Apple stock to a Donor advised fund
that's what they're called it's the way
we give to charity now in our case we've
already done that earlier in the year
Apple was at a great price I don't
remember if it was as high as it is now
may not have been I I can't recall but
it was at a good price and I kind of did
the same thing I'm describing uh right
now and I said okay I like that let's go
ahead and use this as a time to send
some shares over to the donor advise
fund for our annual contribution so
we've already done that but that that's
the kind of thing I would be looking at
uh in circumstances like this the final
thing I'll say is that I do believe
we'll be in for a difficult Market I
don't know when I don't know if it'll be
this year or next but as I mentioned
other than a short blip during Co we
haven't had a recession uh since what
200 I guess it was 8 into perhaps 2009
but since the Great Recession the stock
market is basically just been going up
since then obviously there have been
things like the end of 2018 into 2019
and of course a few months during uh the
start of covid when the markets were
down significantly but overall markets
have have been up significantly at least
in the US uh since the great uh
recession and so I suspect at some point
in the not distant future again it's not
a prediction of when uh but I would
suspect you know a recession wouldn't
surprise me and uh the impact that that
has on markets wouldn't surprise me if
we had some difficult uh years in the
stock market is that causing me to to
sell my stocks no is it causing me to
make sure my asset allocation is where I
want it to be absolutely is it C in me
which by the way you should be doing
that anyway but this you know kind of a
reminder for me and also again just
making sure as a semi-retired person
that we have the cash we're going to
need on hand uh to meet the spending
that we we we project uh over the next
12 months so there you go that's what's
going on at Burkshire hathway my best
guess is to why and then what I'm doing
about it which frankly is not much other
than just making sure things are where
they should be in our investments in our
case they are so good to go no changes
here let me know what you're doing if
anything in response to all of of this
you can leave comment below this video
and until next time remember the best
thing money can buy is Financial Freedom
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