Why Does Warren Buffett Keep Selling?

If you've been following Berkshire Hathaway's (NYSE: BRK.B) moves, you might have noticed a trend lately: Warren Buffett, typically a buyer, is sitting on an ever-growing cash pile and has been selling a fair share of stock. 

As of the last quarter, Berkshire has amassed a staggering $325 billion in cash, marking an unusual shift for the Oracle of Omaha. 

What’s the reason behind Buffett’s big selloff? 

First off, Buffett’s recent selling spree isn't just random. His primary reason? Valuations. He’s publicly noted that stocks are trading well above their intrinsic value, making it hard to find "deals." 

Apple (NASDAQ: AAPL) is a great example. It’s Berkshire's largest holding by far, but even there, Buffett sold half his shares earlier this year … and just recently announced that he sold another 100 million shares over the summer. 

Apple currently scores a zero according to our own valuation criteria:

• AAPL ($222.01) is not significantly undervalued (46.82%) relative to our estimate of its Fair Value price of $151.21 based on Discounted Cash Flow (DCF) modelling, when including a healthy margin of safety
• AAPL ($222.01) is trading above its intrinsic value of $68.07, according to an updated version of Benjamin Graham's Formula from Chapter 11 of "The Intelligent Investor"

Click here to see Apple valuation and fundamentals.

Another factor is taxes. Buffett mentioned that capital gains taxes could go up soon, especially as the government faces increasing pressure to address rising deficits. His strategy here seems to be realizing gains now before potential hikes.

And what about Berkshire itself? Even Berkshire’s own stock seems too expensive in Buffett's eyes, as they haven't repurchased shares in the latest quarter—an unusual move, as they’ve consistently done buybacks for the last six years.

While BRK.B is still good value based on its earnings relative to its share price (8.94x), compared to the US market average (22.05x) … its price to book has been inching up closer to 1.5. And Buffett has historically been more of a buyer at around 1.25 and lower. 

See BRK.B fundamentals here.

For those who look to Buffett as a guide, his decisions may hint at a market correction ahead. 

Let’s Play Devil’s Advocate. Is Buffett’s Cash Pile Really a Big Deal?

Buffett’s moves always make headlines, but it’s worth keeping a few things in mind:

First, Berkshire Hathaway isn't your typical investment firm. It’s one of the largest insurance companies globally. Through GEICO and other subsidiaries, Berkshire needs ample cash to cover potential claims and support its wholly-owned businesses. Unless you also run a large global insurer, Buffett’s moves may not always apply to you … especially when it comes to his cash position.

Also, Berkshire recently hit a record $1 trillion market cap — an incredible milestone. It only makes sense that as Berkshire’s assets grow, so does its cash cushion, which is essential for maintaining a healthy balance sheet. In this light, Berkshire’s “record cash position” sounds more dramatic than it is; for a business of this size, it's basic financial hygiene.

While Buffett sold a portion of Apple and Bank of America (NYSE: BAC) shares, he didn’t ditch them entirely. These two companies remain Berkshire’s largest equity positions by a long shot. Selective selling hints that Buffett likely still believes in their long-term value but wanted to lock in gains at high valuations—a common move among value investors when stocks become pricey relative to fundamentals.

Click here to research BAC stock.

In short … this may not be a “sky is falling” moment but rather a reflection of Buffett’s time-tested approach to being cautiously opportunistic.

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