Warren Buffett appears quite cautious as global stock markets plunged after it was revealed over the weekend that the investing legend had dumped stocks, including half his stake in Apple, and amassed an unprecedented fortress of cash for Berkshire Hathaway in the second quarter. While Buffett, 93, is known to never beat the market and advises others not to try, the moves serve as a wake-up call to some of his followers on Wall Street, who believe he saw some things he didn’t. he likes the economy and market valuation this year. Buffett has actually been a net seller of stocks for seven consecutive quarters with high valuations likely keeping him on the sidelines. Selling activity picked up significantly last quarter, however, with Berkshire offloading more than $75 billion in shares in the period and pushing the group’s cash pile to a record $277 billion. Many Buffett followers see the accelerated selloff of his top holdings as a pessimistic call for the markets as well as the economy. Its bearish sentiment may be fanning the flames of recession fears that have already risen in markets following the recent disappointing jobs data. “This looks worrisome because you have a large and sophisticated investor with a really impressive long-term track record who isn’t putting any of their cash into buying stocks and is actually liquidating massively,” said James Shanahan, an analyst at Edward Jones. covers Berkshire, he said in an interview. “Looks like a very bad signal.” AAPL YTD Apple ‘Seismic Shifts’ Mountain Not only did Apple’s massive holdings fall by more than 49%, Buffett also began dumping shares of Bank of America, his second largest holding. What’s more, it appeared that the Oracle of Omaha didn’t find its own Berkshire stock attractive either, buying only $345 million in the second quarter, significantly lower than the $2 billion bought back in each of the previous two quarters. “These look like seismic shifts, and it could bet on a recession,” Barbara Goodstein, Managing Partner at R360, told CNBC’s “Worldwide Exchange” on Monday. “He plays both offense and defense, limiting exposure to potentially overvalued or risky sectors while keeping his powder dry for major acquisitions.” Buffett sold stocks last quarter when the S&P 500 hit an all-time high on expectations that the U.S. would avoid recession while crushing inflation. That expectation was challenged with a weaker-than-expected jobs report in July. Global markets fell sharply on Monday as worries about an economic slowdown intensified. The Dow Jones industrial average fell 1,000 points at one point, while Japan’s Nikkei 225 plunged 12% in its worst day since the 1987 Black Monday crash for Wall Street. Buffett’s Berkshire was not immune despite his recent moves, falling more than 3%. “You have a huge seller in the market that may have been ahead of some of that bad news, ahead of the turn in the market, ahead of the bearish sentiment,” Shanahan said. .SPX YTD mountain S & P 500 Risk Management Under the influence of his investment lieutenants Ted Weschler and Todd Combs, Buffett began buying Apple eight years ago, marking a change from his usual avoidance of technology companies. The legendary investor spoke highly of Tim Cook’s leadership, the iPhone’s loyal consumer base, and Apple’s consistent buyback strategy. Berkshire’s stake in Apple had grown so much over the years that it accounted for half the stock portfolio at one point, so some believe his decision to take profits was part of portfolio management to reduce such a large concentration. “It’s still Warren Buffett’s single largest position, so it’s likely that this could just be seen as risk management,” Jim Reid, head of global economics and thematic research at Deutsche Bank, said in a note. Tax savings? When Buffett cut his Apple stake by 13% in the first quarter, he hinted at Berkshire’s annual meeting in May that it was for tax reasons. Buffett said at the time that selling “a little bit of Apple” this year would benefit Berkshire shareholders in the long run if the capital gains tax is raised by the US government as it seeks to cover a growing budget deficit. But the size of that sale in the last quarter suggests it could be more than just a tax-saving strategy. There are also other holdings in the portfolio with a lower cost basis than Apple that would be a better candidate for a cut for tax purposes. “I would say with the president’s fiscal policies, I think something has to give. And I think it’s very likely higher taxes. And the government wants to take a bigger share of your income, or mine, or Berkshire’s, can do that,” Buffett said at the annual meeting.
