Warren Buffett may be cashing in stocks ahead of a storm, and could buy them back after it hits, top strategist says
The "Oracle of Omaha" has a "history of selling out of the stock market" when economic and financial indicators are "signaling a bear market or a recession is coming," Wedbush's chief investment strategist, Paul Dietrich, told Business Insider.
Buffett's Berkshire Hathaway has been a net seller of stocks for 11 straight quarters, even though the market has "soared" to new highs in that period, Dietrich added.
The investor's conglomerate offloaded $212 billion of shares while only buying $34.5 billion, meaning its net disposals exceeded $177 billion — more than the market value of BlackRock or Boeing.
Buffett also halted stock buybacks for the last four quarters as he no longer saw Berkshire stock as cheap, Dietrich said. The pause marks a big change from Berkshire's peak repurchases of over $20 billion in both 2020 and 2021.
Berkshire's share sales and lack of buybacks have contributed to its cash pile, which more than tripled to a record $344 billion over the three years to June 30.
Warren Buffett built up cash before the 2008 financial crisis and the dot-com crash
Buffett has jettisoned stocks and gone to cash ahead of past downturns, Dietrich said.
Berkshire grew its cash pile from around $11 billion in 1997 to $35 billion in 1998, and ramped up its net stock sales from $700 million in 1999 to $2.7 billion in 2000, ahead of the dot-com crash.
The corporate titan had grown its cash pile to more than $70 billion when the financial crisis struck. It fell to about $52 billion by the end of 2008 as Buffett made a series of lucrative deals during the disaster. Berkshire ramped up its net stock purchases from around $5 billion in 2006 to $11 billion in 2007 as it capitalized on depressed asset prices.
Buffett sounded cautious about the market during Berkshire's annual meeting in May, Dietrich said. Before his shock announcement that he intended to step down as CEO at the end of this year, Buffett bemoaned the lack of potential bargains as asset valuations continued to rise.
Dietrich said the " Buffett Indicator" may be alarming the Berkshire CEO. The gauge, which compares the US stock market's value to the US economy's size, has surged to historic highs of above 210%, he said.
That means the combined market capitalization of all actively traded US stocks is more than double the latest quarterly estimate of US GDP. Buffett once wrote that buying stocks at readings approaching 200% would be "playing with fire."
The Wall Street veteran recalled Buffett's famous advice to "be fearful when others are greedy, and be greedy when others are fearful," saying the Berkshire chief is preparing to pounce once valuations fall to attractive levels.
Dietrich said Buffett would use his cash pile "to eventually buy back Apple and the other shares he has sold — but at a major discount —after the current nose-bleed stock market highs eventually come back down to earth."
Berkshire Hathaway didn't immediately respond to a request for comment from Business Insider.
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