Warren Buffett's Strategic Moves: $143 Billion in Sales and $3 Billion in Purchases

Warren Buffett is often seen as a leader in the investing world, and his actions in 2024 have sparked interest and analysis among investors. He has made it clear in his recent letter to shareholders that he prefers to keep most of Berkshire Hathaway's funds invested in stocks, despite significant changes in his portfolio.

In 2024, Buffett sold over $143 billion worth of publicly traded stocks, which included notable stakes in Apple and Bank of America. Alongside these substantial sales, he only made $9.3 billion in new stock purchases during the year. Notably, he even paused share repurchases of Berkshire Hathaway's own stock during the latter half of the year. As a result, Berkshire's cash and Treasury bills reached a staggering $334 billion by the close of December.

Despite the apparent inconsistency between his preference for equities and his actions in 2024, there is a clear rationale behind it. The $3 billion he invested in five stocks during the fourth quarter serves as evidence of his current market preferences.

Highlights of Buffett's Latest Investments

Berkshire Hathaway revealed its portfolio as of the end of 2024 in a recent filing with the Securities and Exchange Commission (SEC). This disclosure listed six new purchases during the fourth quarter, including the long-established investment in Occidental Petroleum. Here are the other five stocks Buffett has recently acquired:

• 5.6 million shares of Constellation Brands
• 1.1 million shares of Domino's Pizza
• 12.3 million shares of Sirius XM
• 456,000 shares of Verisign
• 195,000 shares of Pool Corp.

In total, Buffett allocated approximately $3 billion across these five companies at the end of the year. It's noteworthy that these companies are relatively smaller in size, with Constellation Brands being the largest, valued at around $32 billion. Together, the five companies have a total market capitalization of less than $93 billion.

Buffett's ongoing interest in these smaller firms highlights his belief that there are still stocks that present significant value. However, the sheer volume of cash generated from the sales of large-cap stocks like Apple (worth about $3.6 trillion) and Bank of America (valued at $339 billion) means he struggles to find enough smaller investments to balance the scales.

For investment managers not facing the constraints that Buffett does, deploying $9.3 billion in stocks wouldn’t typically be interpreted as a negative outlook. However, Berkshire's size complicates the challenge of finding suitable investments that can adequately offset significant asset sales. In his 2023 letter to shareholders, Buffett had already addressed this issue:

"There remain only a handful of companies in this country capable of truly making an impact at Berkshire. These have been thoroughly examined by us and others. Some are valued, while others are not, and if we can assess their value, they must be attractively priced."

Currently, Buffett suggests that the very few investments within that top-tier list are not priced attractively.

The Key Takeaway for Investors

Berkshire's net equity sales of around $134 billion in 2024 should not serve as a signal for investors to exit the stock market. Instead, it serves as a reminder for investors to remain discerning in their choices. A closer examination of Buffett's purchases reveals a preference for smaller companies.

This focus aligns with the present market valuations for mid-cap and small-cap indices, which appear more favorable when compared to the large-cap S&P 500. Currently, the S&P 500 has a forward price-to-earnings (P/E) ratio of 21.8, marking one of the highest valuations since the dot-com era. While this does not forecast an imminent market crash, it does indicate that finding large-cap stocks trading below their intrinsic value is challenging.

In contrast, the S&P 400 mid-cap index and the S&P 600 small-cap index have forward P/E ratios of 15.6 and 15.3, respectively. This suggests a wider array of attractive value stocks can be found among smaller-cap companies. Unfortunately, these stocks are not equipped to accommodate major purchases from a billionaire investor, making them less relevant for Buffett to explore. However, they could be valuable opportunities for individual investors with average-sized portfolios.

If researching individual stocks isn’t appealing, consider diversifying away from pricier large-cap stocks through index funds. Vanguard, for instance, offers the Vanguard Extended Market ETF, which tracks the performance of practically all U.S. stocks not included in the S&P 500. Alternatively, there are index funds specifically targeting mid-cap and small-cap indices.

As investors look to follow Buffett's footsteps in the market, it’s crucial to recognize that he is playing a fundamentally different game than individual investors. The opportunities available to smaller investors are considerably more extensive, and by paying attention to Buffett's philosophies and how he manages his challenges, one can potentially reap significant benefits over time.

Buffett, Investments, Market