when Berkshire Hathaway‘s (NYSE: BRK.A)(NYSE: BRK.B) Billionaire Chief Speak, Wall Street, listens wisely. That’s because Warren Buffett is far above the benchmark. S&P 500 (snpindex: ^gspc) In 60 years as CEO. Aptly dubbed “Olcle of Omaha” oversaw a cumulative profit of 6,076,172% in Berkshire’s Class A stock (BRK.A) as of the February 24th closure bell.
Picking Buffett’s brain happens in many ways. Submit quarterly Form 13FS Investors can see which stocks he and his top advisors Todd Combs and Ted Weschler sell and sell. Similarly, Berkshire’s quarterly operating results provide insight into whether Buffett and his team are net buyers or sellers of stocks.
But perhaps the most insight can be obtained from the oracle of Omaha’s annual shareholder letter. These letters often cover basics, such as how Berkshire Hathaway played in recent years, or jump into the spirit of What characteristics does Buffett look for in his investment?.
These shareholder letters are usually known for their unwavering optimism, but Buffett’s newly released letters contain four of the coldest words investors have ever witnessed.
Again, Warren Buffett is optimist first and foremost. In many cases, he warns investors not to bet on America, and has previously proposed that owning an S&P 500 index fund is one of the best ways to get into touch with America’s great American companies.
Berkshire Chiefs take this stance as they recognize the nonlinearity of economic and stock market cycles. This means that Buffett recognizes the economic recession and stock market corrections are normal and inevitable. Berkshire’s brightest investment minds play simple numbers games rather than trying to see when they occur.
Although the recession and bare markets have historically been short-lived, the period of US economic growth and bull markets has lasted quite a long time. Statistically, it makes much more sense to be a long-term optimist.
Despite this unwavering optimism, Omaha’s Oracle is a very noisy investor who wants the value that is recognized when building stocks in a publicly available company.
When he and his team discuss how to invest in the Berkshire capital under “where your money is,” Buffett says he is dull, “often not persuasive.” These four cold words put Buffett’s proverb card on the surface for investors, clearly indicating that he is struggling to find value in the historically expensive stock market.
The truth is that we didn’t need Berkshire Hathaway’s annual shareholder letters to know that Warren Buffett wasn’t satisfied with the broader market stock valuation.
Over the last nine quarters (from October 1, 2022 to December 31, 2024), Berkshire billionaire leaders were net sellers of stocks, earning songs totaling nearly $173 billion. This includes $134 billion in 2024 sales and the company’s cash piles north of $334 billion, including the US Treasury Department.
In one respect, the entire stock market is one of the most expensive valuations in history. The Buffett Indicator split the total market capitalization of all US companies into US gross domestic product (GDP), reaching an all-time high on February 18th. Meanwhile, the average reading of the Buffett indicator was 85% (i.e. 85% market capitalization of all stocks averaged 85% of US GDP) has appeared since 1970 at 207.46%.
This is the same story about the S&P 500’s Syrah price-to-earning (P/E) ratio. This is also regularly referred to as the cyclically adjusted P/E ratio (CAPE ratio). This valuation tool is based on average inflation-adjusted revenue over the past decade and was backtested in January 1871.
Over the past 154 years, the average Schiller P/E reading is 17.21. As of the closing bell on February 24th, the Syrah P/E ratio of the S&P 500 rang at 37.73, marking the third highest reading in the ongoing bull market dating back to 1871.
It’s expensive on the stock market, some of Berkshire Hathaway’s core holdings are not of their former value.
For top holding apple (NASDAQ: AAPL) It was added to Berkshire’s portfolio in the first quarter of 2016, trading at P/E multiples for low teens. As of February 24, investors had paid more than 39 times their 12-month earnings to own the tech giant. Perhaps it’s no surprise that Buffett oversaw the sale of Apple, which has roughly 615.6 million shares in a year.
Considering how expensive major stock indexes are on Wall Street, and taking into account that Buffett was a net seller of stock for the nine-quarter, it is unlikely that he and his advisors will soon roll out a significant portion of Berkshire Hathaway’s treasure chest.
However, Buffett’s latest shareholder letter also provided words of encouragement, reinforcing the long-term spirit that he and the late right-hand Charlie Munger injected into the company. Buffett said,
“Berkshire shareholders can be sure we will deploy a significant majority of their money into stocks forever. Many of these have important international businesses, but most have American stocks.”
Frankly, Warren Buffett is looking for quite a bit of deals and wants a reason to put his company’s capital into work. But he is a mental value investor and he is not going to chase the multinationals higher if the valuation doesn’t guarantee it.
Historically, the oracle of willingness to exercise Omaha’s patience and wait for the valuation to return to Earth has worked incredible as it has proven cumulative returns of over 6,000,000% in Berkshire Class A stock over the past 60 years. However, if “nothing is persuasive”, investors can expect to regularly sell activities that exceed purchases.
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Shawn Williams There is no position in any of the stocks mentioned. Motley Fool has jobs at Apple and Berkshire Hathaway. To Motley’s fool Disclosure Policy.
Warren Buffett’s annual letter shares four of the coldest words investors have ever witnessed Originally published by The Motley Fool
