Warren Buffett’s Stock Sell-Off Sparks Concerns Over Market Valuations

Despite the persistent rally in the U.S. stock market, Warren Buffett (Trades, Portfolio) has been actively selling off stocks. David Einhorn (Trades, Portfolio), founder and president of Greenlight Capital, highlighted this trend in his latest quarterly report, describing the current market as the most overvalued since the firm’s inception in 1996. He noted that Buffett’s actions indicate it might not be the best time for high stock exposure.

Einhorn remarked that while predicting market timing is challenging, Buffett is one of the best forecasters they’ve known. Buffett has been reducing his stock positions and accumulating cash, reaching a record $189 billion in cash reserves as of mid-August. Over the past seven quarters, Buffett’s stock sales have consistently exceeded his purchases.

Significantly, Buffett made a substantial reduction in his holding of Apple (AAPL, Financial) stocks, selling nearly half, valued at approximately $73 billion. In the first half of 2024, his total stock sales amounted to $97 billion compared to $4.3 billion in new purchases. Additionally, he has been selling off Bank of America shares, reducing Berkshire Hathaway’s stake to below 10%, cashing in over $10 billion.

Buffett partially attributed these sales to anticipated corporate tax hikes once current tax laws expire next year. Analysts suggest his decisions might also reflect his view that these stocks are trading at or above their intrinsic value, signaling his reluctance to hold undervalued assets despite potential future tax increases.

Einhorn did not interpret Buffett’s actions as predicting an imminent market crash, but emphasized Buffett’s knack for reducing risk at appropriate times. He cited historical instances when Buffett closed his fund in the 1960s or sold holdings before the 1987 market crash, highlighting the significance of his current stock sell-off and cash accumulation.

Einhorn concluded that while a market bubble isn’t certain, corporate profits are cyclically high and rising price-to-earnings ratios are concerning. He pointed out that not only tech stocks are overvalued but also mature industrial stocks, whose P/E ratios have reached 30 to 50 times.