Warren Buffett is Selling Stocks--Should we?

Summary

In 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

00:00

📉 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.

05:01

🤔 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.

10:01

🚫 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.

15:04

💼 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.

Keywords

💡Form 10-Q

A Form 10-Q is a quarterly report filed by publicly traded companies with the Securities and Exchange Commission (SEC). It includes the company's financial performance, management's discussion of financial condition, and other relevant information. In the video, Berkshire Hathaway's filing of a Form 10-Q is mentioned as the source of information about Warren Buffett's recent stock sales and the company's cash position.

💡Warren Buffett

Warren Buffett is the chairman and CEO of Berkshire Hathaway and is renowned as one of the most successful investors in the world. His actions and decisions are closely watched by investors for insight into market trends and investment strategies. The video discusses Buffett's recent sales of stock, specifically in Apple, and the implications for Berkshire Hathaway.

💡Berkshire Hathaway

Berkshire Hathaway is a multinational conglomerate holding company led by Warren Buffett. It is known for its ownership of a diverse range of businesses and investments. The video script discusses the company's recent financial moves, including the accumulation of cash and the selling of stocks, which are significant due to Berkshire's size and influence.

💡Stock Sales

Stock sales refer to the act of selling shares of stock that an investor owns. In the context of the video, Warren Buffett and Berkshire Hathaway have been selling off significant amounts of stock, particularly in Apple, which is a major part of their portfolio. This is a key action that prompts the discussion in the video about market strategies and potential future moves.

💡Cash Position

A company's cash position refers to the amount of cash and cash equivalents it holds. The video highlights that Berkshire Hathaway now has a record amount of cash on hand, which is a result of their recent stock sales. This raises questions about why they are holding so much cash and what it might mean for future investment decisions.

💡Apple Inc.

Apple Inc. is a multinational technology company known for its consumer electronics, software, and services. It is one of Berkshire Hathaway's largest holdings, and the video discusses how Warren Buffett has sold a significant portion of Berkshire's stake in Apple, which is a noteworthy move given the company's value and potential growth.

💡Asset Allocation

Asset allocation is the process of distributing investments across different asset classes, such as stocks, bonds, and cash, to manage risk and return based on an investor's goals. The video mentions the importance of reviewing and adjusting one's asset allocation in response to market conditions, particularly when stock valuations are high.

💡Tax Considerations

Tax considerations are an important factor in investment decisions, as they can affect the net return on investments. The video suggests that Berkshire Hathaway may have sold stocks to take advantage of the current lower tax rates, anticipating that they may rise in the future, which would make selling stocks more costly.

💡Valuation

Valuation refers to the process of determining the worth of an asset or company. The video discusses the high valuation of stocks, particularly large US company stocks, as indicated by the Schiller PE ratio. This high valuation is a factor that investors, like Warren Buffett, might consider when deciding to sell or hold stocks.

💡Recession

A recession is a period of economic decline, typically characterized by a fall in GDP, high unemployment, and a drop in consumer spending. The video script mentions the possibility of a recession as a factor that could influence investment decisions, including the accumulation of cash and the selling of stocks.

💡Financial Freedom

Financial freedom refers to the state of having control over one's financial life and not being dependent on a job for income. The video concludes with the idea that the ultimate goal of investing and managing one's finances is to achieve financial freedom, which is a state of independence and security.

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