2024 has been quite a pleasant year for billionaire Warren Buffett and investors in general. After suffering through the 2022 stock market correction, the stock market in the US, as well as the UK, has been on a roll. And shares in his investment vehicle, Berkshire Hathaway (NYSE:BRK.B), are subsequently up by double digits since January.
As encouraging as it is to see investor sentiment improve alongside economic conditions, there are potential warning signs emerging of a pullback. In fact, the Bank of England (BoE) has recently highlighted the risk of investors becoming complacent. And if that’s true, following Buffett’s leading advice could be a prudent move right now.
‘Be fearful when others are greedy’
As a well-known contrarian, the ‘Oracle of Omaha’ is known for not following the pack. That’s been evident in the last few years when he’s been aggressively buying shares while the rest of the world was panic-selling. So with stocks rising this year, does that mean now’s the time to start selling?
The BoE highlighted that asset prices in the UK are high relative to historical levels. And it suggested that investors aren’t placing enough weight on the risks surrounding inflation and geopolitical conflicts that could throw a big spanner in the works.
The Federal Reserve (The Fed) in the US has made similar comments, especially in regard to the technology sector. And Buffett’s team at Berkshire has actually been selling off large quantities of shares in Apple this year. This certainly sounds like he’s following his own advice.
Is the gravy train coming to an end?
On the surface, it looks like Buffett’s preparing for the worst. After all, this sale pushed the company’s cash balance to around $189bn – a new record high. That suggests he’s hoarding cash. But there’s an alternative explanation.
Even after selling off a massive chunk of Apple shares, the tech giant still represents almost 40% of Berkshire’s investment portfolio. The fact that he didn’t sell more to achieve better diversification suggests his long-term commitment as a shareholder hasn’t changed, regardless of the macroeconomic landscape.
What about the statements from the central banks? While concerning, it’s worth pointing out that the BoE and The Fed have a pretty lacklustre track record of making predictions. In fact, the former had previously predicted a sharp correction earlier this year that failed to materialise.
Hope for the best, prepare for the worst
Another stock market correction, or even crash, is inevitable. But when such an event will take place is anyone’s best guess. There are always bearish predictions of collapse during bull markets, the vast majority of which don’t come true. That’s why Buffett always remains focused on the long game. And that’s what he appears to be doing right now.
With enormous sums of capital in the bank, he’s ready to start snapping up bargains should stock prices take another tumble.
