Warren Buffett is Selling Stocks--Should we?

Intro 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 Buffett Selling Stocks 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 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 My Thoughts 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