Warren Buffett Just Gave Investors a $46 Million Warning About the Stock Market
Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) recently gave investors an updated look at its widely followed stock portfolio as of the end of the fourth quarter, and some of the moves weren't surprising. For example, many investors expected that Warren Buffett and his team might trim the company's massive Bank of America investment, and the company sold some shares of DaVita in order to keep its stake below its desired 45% level.
On the other hand, there were a few surprises. At the top of the list was Berkshire's sales of two S&P 500 index funds. Berkshire had owned shares of the Vanguard S&P 500 ETF (NYSEMKT: VOO) and the SPDR S&P 500 ETF Trust (NYSEMKT: SPY) since late 2019, but both positions have been completely closed out.
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Buffett has sold quite a few stocks lately
This is just the latest in a string of stock sales by Berkshire. The company made headlines earlier this year when it unloaded a large portion of its massive Apple investment and several other stocks. In fact, Berkshire's cash stockpile swelled to $325 billion at the end of the third quarter from about $157 billion a year earlier.
Based on the fourth-quarter 13F filing, Buffett's cash hoard is likely to have swelled even further when the company's annual report is revealed later this month. In addition to the two S&P 500 ETFs, Berkshire's notable sales in the fourth quarter included:
- About $5.2 billion worth of Bank of America (based on quarter end price)
- $294 million worth of Capital One
- $2.9 million worth of Citigroup
- $285 million of Charter Communications
- $479 million of Brazilian fintech Nu Holdings
Berkshire did buy a few stocks in the fourth quarter, but Buffett and his team were clearly net sellers of stocks, yet again.
Why did Berkshire sell these S&P 500 ETFs?
Investors have absolutely no idea why Berkshire decided to sell these two ETFs and don't even know if the sales were initiated by Warren Buffett or one of Berkshire's investment managers.
If you aren't familiar, both of the ETFs Buffett sold are low-cost S&P 500 index funds, meaning they aim to track the long-term returns of the benchmark S&P 500 index over time.
The S&P 500 set quite a few all-time highs in the fourth quarter of last year when Berkshire's sales took place. (Investors don't know exactly when during the quarter the sales occurred). Plus, based on several valuation metrics -- including the so-called "Buffett indicator," which looks at the ratio of total market cap to gross domestic product (GDP) -- the market is historically expensive.
Very small positions for Berkshire
As a final thought, even though Warren Buffett has called low-cost S&P 500 index funds the best investment most people can make, it's important to point out that these weren't large investments for Berkshire. Based on the current market value of each ETF, the Vanguard S&P 500 ETF position was worth about $23 million, and the company's investment in the SPDR version was worth about the same. These two ETFs accounted for less than 0.02% of Berkshire's stock portfolio combined.
Take these sales with a grain of salt. It's quite clear through massive stock sales of Apple, Bank of America, and several other smaller sales in recent quarters that Buffett is taking some money off the table. But the unwinding of these extremely small (for Berkshire) positions doesn't necessarily mean that Buffett is souring on the stock market. After all, Berkshire added to six different stock positions since the end of the third quarter -- and it used a lot more than $23 million to do it.
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Citigroup is an advertising partner of Motley Fool Money. Bank of America is an advertising partner of Motley Fool Money. Matt Frankel has positions in Bank of America, Berkshire Hathaway, Capital One Financial, and Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends Apple, Bank of America, Berkshire Hathaway, and Vanguard S&P 500 ETF. The Motley Fool recommends Nu Holdings. The Motley Fool has a disclosure policy.
