Today’s stock market is unlike any other in history—Warren Buffett said as much during Berkshire Hathaway’s first-quarter earnings release.
The novel coronavirus first caused an epic stock market crash, but Fed stimulus and hopes for a quick recovery have pushed the Dow Jones Industrial Average more than 20% higher in just two months. But analysts have been warning that this looks like a short-term bear market rally and this week investing legend Warren Buffett joined their chorus.
Buffett revealed that he offloaded $16.3 million worth of U.S. Bancorp (NYSE:USB) stock on May 11-12. The sale brought Berkshire Hathaway’s overall stake in USB to under 10%, meaning he is no longer required to disclose his trading activity outside of typical quarterly results.
This isn’t the first time Buffet sold off a substantial holding since the coronavirus pandemic hit. He also unloaded $30.9 million worth of Bank of New York Mellon (NYSE:BK) stock back in April.
On top of those two significant sales, BRK was sitting on a record $137 billion worth of cash at the end of March. That’s one heck of a war-chest for someone who typically gobbles up cheap stocks when the market is down.
As it turns out, the Oracle of Omaha is standing alongside fellow billionaire investors who’ve been pounding the panic button in recent weeks.
Buffett’s pessimism about the market falls in line with investing heavyweights Stan Druckenmiller and David Tepper, both of whom consider today’s market to be vastly overvalued. But that’s not all. Investing legends Carl Icahn, Paul Tudor Jones, and Bill Miller have also retreated from the market in recent weeks.
Bill Miller, who in March believed the market offered a buying opportunity, has reversed course calling for a decline of around 5% for the S&P 500:
After being up about 30% from the low on March 23, I would think a pause and some consolidation is in order.
But not everyone is willing to take investment advice from Wall Street. Some prefer to follow the guidance of President Trump, who slammed stock market bears in a tweet:
Trump could have a point. Bill Ackman cried on national television when the coronavirus pandemic began to creep into the stock market and later pocketed $2.75 billion because of a credit hedge he bought back in February.
But what about Fed Chair Jerome Powell, a man Trump himself appointed? Should we believe him?
Because by his own account, people have become overly optimistic about a return to normalcy. This week Powell cautioned that the economic recovery could be slow and that will likely lead to pain among U.S. firms:
The recovery may take some time to gather momentum, and the passage of time can turn liquidity problems into solvency problems. Long stretches of unemployment can damage or end workers’ careers as their skills lose value and professional networks dry up, and leave families in greater debt. The loss of thousands of small- and medium-sized businesses across the country would destroy the life’s work and family legacy of many business and community leaders and limit the strength of the recovery when it comes.
Even if you ignored Buffett’s comments at his shareholders’ meeting, anyone who follows his investment strategy should be heading for the door.
Warren Buffett’s underling investment principle, to be greedy when the market is fearful and fearful when the market is greedy, suggests that now is the time to sell. Data from the Fed show that throughout the coronavirus pandemic investors have become increasingly optimistic about the stock market’s future. So much so that investors are now more bullish than they’ve been over the past seven years.
That’s greed talking–and Buffett’s followers should be paying attention.
The author holds no investment position in the aforementioned securities at the time of writing.
Last modified: May 16, 2020 6:15 PM UTC