Omaha, Nebraska – Warren Buffett’s Berkshire Hathaway has sold $28.7 billion worth of stocks in the first three quarters of 2023, sparking debate over whether the moves by the legendary investor known as the “Oracle of Omaha” portend trouble for the U.S. economy.
According to Berkshire Hathaway’s latest earnings report, the diversified holding company sold $10.4 billion of stocks in the first quarter of 2023. It unloaded nearly $13 billion more in the second quarter, while buying less than $5 billion. And in the third quarter, Buffett’s firm sold another $5.3 billion in equities.
With Buffett renowned globally as perhaps history’s greatest investor and one of the world’s wealthiest individuals, his every investment decision faces intense scrutiny. So what explains the recent massive stock sell-off?
Recession Warning Flags
Some economists see Buffett lightening up on equities while Berkshire Hathaway accumulates a record $157 billion cash pile as warning flags for an impending recession.
The recent lightening up on stocks and accumulation of a pile of cash is consistent with the fact that stocks are relatively pricey right now,” said Steve H. Hanke, Professor of Applied Economics at Johns Hopkins University and former adviser to President Ronald Reagan.
“But it’s also a clear sign that a recession is right around the corner,” Hanke added in an interview with Newsweek.
Hanke pointed specifically to contraction in the U.S. money supply as measured by the M2 gauge. Since peaking in March 2022, the M2 has plunged by over 3% – declines on a scale not seen since the early 20th century.
The professor noted that in the few prior instances of comparable M2 contraction, including 1923, 1930, 1938, and 1949, recessions invariably followed.
Preparing for Market Turmoil
Other market watchers argue Buffett’s maneuvers likely reflect more tactical considerations rather than outright pessimism over the economic outlook.
David Wagner, Portfolio Manager at investment advisory firm Aptus Capital, told Newsweek that Berkshire needs to hold extra liquidity partly to cover potential losses from its massive insurance operations.
With inflation driving up claims costs across property, casualty, life and health coverage, Buffett wants to keep powder dry to pay future claims if needed, Wagner said.
Berkshire Hathaway also likely foresees chances to snap up bargains should stock markets tumble under economic or geopolitical pressures, according to Wagner.
“If the market were to take a fall, he’ll be ready to buy when valuations are lower, much like what he did in 2008,” Wagner said, referring to Buffett’s investments amid the global financial crisis.
‘Classic Buffett’ Market Calls
While economists debate the motivation behind Buffett’s recent trades, most agree his market timing has proven impeccable over his six-decade investing career.
“He loves to fish in troubled waters,” Hanke said. “With the Fed putting the money supply in a nosedive the likes that we haven’t seen since 1933, Buffett is correctly anticipating that troubled economic waters are in the offing.”
When those challenges do emerge, Hanke expects Buffett to put his near-record cash reserves to work in opportunistic ways that reward Berkshire investors.
That could mean swooping in to strike favorable deals with distressed banks and insurers, in the style of his epic investments amid the savings and loan crisis or 2008-2009 financial meltdown.
But whatever headwinds loom ahead, the sage of Omaha has positioned his holding company to emerge stronger than ever. Because crisis or not, for Buffett, it’s always the right time to be greedy when others are fearful.