For a long time in the past, although the US stock market has been "rising like a rainbow", the "stock god" Warren Buffett has been selling stocks.
In response, David Einhorn, a Wall Street hedge fund guru and founder and president of Greenlight Capital, said that investors are driving what appears to be the most expensive stock market in decades, "think about the fact that Warren Buffett is cashing out of a bull market
He pointed out in the latest quarterly report that the current stock of the company has been "most overvalued" since its establishment in 1996. Eindhoven said that now may not be a good time to maintain high stock exposure, and he also cited Buffett's selling of stocks as an example to prove this point.
Although Buffett often points out that it is impossible to predict the timing of the market, we have to admit that he is one of the best market forecasters we have ever seen, "he wrote.
It should be noted that Buffett has been reducing his stock positions and choosing to hold cash off the exchange. As of mid August, Buffett's cash reserves reached a record high of $189 billion and he has been taking profits on successful stocks ever since. According to statistics, Buffett has sold more stocks than he bought in each of the past seven quarters.
In addition, this' Omaha Prophet 'conducted the largest ever stock sell-off in the last quarter, reducing his holdings of Apple Inc. stock by about half, worth approximately $73 billion. In the first half of 2024, Buffett's total stock sales amounted to $97 billion, while new stock purchases amounted to only $4.3 billion.
At the same time, he has been aggressively selling off Bank of America stocks for several months and has reduced Berkshire Hathaway's stake in Bank of America to below 10%, accumulating over $10 billion in cash.
Buffett has stated that part of the reason for selling stocks of companies such as Apple and Bank of America is that he believes the corporate tax rate will rise after the current tax laws expire at the end of next year.
But some analysis suggests that his decision also indicates that he believes the trading prices of these stocks are close to or higher than their intrinsic value. Because if he thinks these stocks are undervalued, he should be willing to pay higher taxes in the future in order to have an undervalued asset today.
Although Eindhoven did not interpret Buffett's behavior as a prediction of an imminent collapse, he stated that this' Omaha prophet 'has a talent for reducing risk exposure at the appropriate time. For example, Buffett closed his fund before the market valuation became too foam in the 1960s, and sold his shares before the stock market crash in 1987.
Therefore, it is worth noting that Mr. Buffett has recently sold a large amount of his stock investment portfolio again and established a huge cash reserve, "he wrote.
Einhorn said that this does not mean that there must be a foam in the market, but corporate profits are indeed at a cyclical high, and the rise of P/E ratio is worrying.
Finally, he emphasized that the problem is not just the "overvaluation" of well-known technology stocks. The letter stated that even mature industrial stocks with cyclical and growth opportunities have a P/E ratio of 30 to 50 times.