Warren Buffett is often viewed as one the greatest fundamental investors of all time, who is known across the world for identifying stocks at a discounted price and holding them for a long time. Warren Buffet is the CEO and Chairman of Berkshire Hathaway, a popular investment management company in the US. 94-year-old Buffett has an astonishing net worth of 141.7 billion dollars, making him the 7th richest man in the entire world. From the beginning of 2024, Buffett has been aggressively selling the stocks of 2 companies, Apple Inc. and Bank of America, triggering the fear of a major market crash among investors around the world.
Warren Buffett just announced that his portfolio is 70% cash. He quotes that majority of his fortune was made during market crashes. The next 4 months are going to be nuts. pic.twitter.com/mUWouX91j1
— Kevin Malone (@Malone_Wealth) August 4, 2024Who is Warren Buffett?
Warren Edward Buffett is an American investor and philanthropist who has earned the reputation of the greatest value investor in the entire world, with a “simple” investment philosophy. Born in 1930, Buffett had a very humble beginning, showcasing a passion for the stock market from a very early age. When Warren Buffett was only 11, he bought his first stock, which gave him a multi-bagger return within a few months. From his childhood, he followed the footsteps of Benjamin Graham, who is often known as the founder of the value investing style.
Warren Buffett has always remained rooted in the ground despite his fame and fortune, continuously highlighting the benefits of long-term investment. Due to his long-standing success in the stock market, Warren Buffet has been named the “Oracle of Omaha” by the media. After accumulating a massive fortune, Warren Buffet concentrated on philanthropic activities, pledging 99% of his wealth to charity. Warren Buffett has also founded “the Giving Pledge” with Bill Gates, whereby billionaires and multimillionaires pledge to give away at least half of their fortunes to charitable causes.
The unexpected rise of Berkshire Hathaway
In 1956, the Buffett Partnership Ltd. was established, a small-scale investment firm led by Warren Buffett, managing the money of friends and family. In 1970, the investment firm of Buffett acquired Berkshire Hathaway, a struggling textile manufacturing firm. In 1978, Charlie Munger who was Buffett’s friend and long-time business associate join this organisation. Under the leadership of both Munger and Buffett, Berkshire Hathaway became one of the foremost holding companies in the entire world.
Why the fear of a market crash?
Buffet’s Berkshire Hathaway has raised its cash pile to total assets in the June quarter to 25 per cent, and this level was last seen in 2005. This investment company have trimmed its holding in Apple Inc. by nearly 50 % and Bank of America by 8.8 % since July. As the movement of Warren Buffett is closely monitored by retail investors and institutional investors, situations of panic have emerged. The last time when Buffet was on a selling streak, within a few years, the housing market crash of 2008 occurred, which had wiped out billions of dollars form stock markets around the world.
This is the seventh consecutive quarter in which Warren Buffet and his team have sold more shares than purchased, raising the eyebrows of the investors. The continuous actions of the world’s most popular investors have grabbed the attention of the financial world, heightening the speculation about the market crash.
Is the threat of a market crash real?
Warren Buffett’s main investment principle is “Be cautious when others are greedy, and be bold when others are fearful.” His current strategy of continuously selling stocks and accumulating cash suggests that he is not finding appealing opportunities to invest in the current market condition. Although Buffett is a strong believer in the strong economic growth and propriety of the US, he is still not a big fan of overpaying for even the most reliable business. Warren Buffett is quite sure about the long-term growth of the US stock market; however, for him, buying stocks at the right price is very important.
In the first quarter of 2024, the US stock market is continuously growing mainly because of the tech stocks which are performing effectively due to the advancements in artificial intelligence (AI). However, in the second quarter the stock of most of the technology companies collapses as their performance does not match with the investor’s sentiment. Warren Buffet might have viewed this situation as the best opportunity to sell Apple stocks as a precaution in an overheated market.
It is interesting to know that Berkshire Hathaway still holds 400 million Apple shares, which are currently valued at 84.2 billion dollars, which is double the size of its stakes in Bank of America and American Express, the next largest holdings. The investment philosophy of Warren Buffet does not involve timing the market, as he mentioned in one of his interviews that his preferred holding period is “forever”. Warren Buffett only engages is selling the stocks when the market is becoming overvalued or any problematic changes in the management.
Hence concluding the selling of stocks to an upcoming market crash is not correct. Whenever the stock market reaches reaching all-time high, Berkshire Hathaway sells its holdings in order to increase the cash reserve that helps it to invest heavily in the next big thing. In Berkshire Hathaway’s annual meeting in May 2024, Warren Buffett mentioned that increasing the company’s cash is now more practical compared to buying additional stocks, given the current market environment. So Buffett’s selling of the stock cannot be viewed as any immediate indication of a market crash.
Warren Buffet’s investment philosophy
Warren Buffet follows a unique investment philosophy, which has helped him to generate a viable return over multiple decades. Buffett seeks to purchase stocks at a price below its intrinsic value, according to him, this is the present value of all future cash flows. This automatically enables a margin of safety, which accounts for the potential risks and uncertainties. From his early days, Buffet has kept a long-term perspective holding fundamentally strong stocks for multiple years and even decades. He is now 94, and he still has a long-term focus.
This is the reason Warren Buffett is not concerned about short-term market fluctuation. Warren Buffet always prefers to invest in companies which have strong economic moats, meaning the company needs to have competitive advantages that protect their profits even during challenging times. For example, Coca-Cola is one of his favourite investments, which has the moat of a global supply chain and unique taste, preventing the competitors from eating up its market share.
From the selling streak of Warren Buffet, it cannot be concluded that a major market crash is near, because he does not believe in timing the market. From its early days Buffet have never tried to sell during the end of the Bull Run in order to purchase more stocks during the crash.
Buffet only shows any interest in selling the stocks when he thinks the company have reached its full potential and cannot grow in the future or when there are any problems in the management. There is no clear indication if the US stock market is moving towards a crash; however, if the US market crashes, there will be shock waves affecting the stock market of all the major economies.
FAQ
Who is Warren Buffett?
Warren Edward Buffett is an American investor and philanthropist who has earned the reputation of the greatest value investor in the entire world, with a “simple” investment philosophy.
Who is the CEO and Chairman of Berkshire Hathaway?
Warren Buffett the CEO and Chairman of Berkshire Hathaway.
What is the investment philosophy followed by Warren Buffet?
Buffett seeks to purchase stocks at a price below its intrinsic value, according to him, this is the present value of all future cash flows.
Is the fear of market crash real?
From the selling streak of Warren Buffet, it cannot be concluded that a major market crash is near, because he does not believe in timing the market.
Who is the long-time business associate of Warren Buffet?
Charlie Munger is the long-time business associate of Warren Buffet who have helped in making Berkshire Hathaway one of the foremost holding companies in the entire world.
