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There Are Several Reasons To Sell, Yet Warren Buffett Keeps Buying

Published 09/06/2022, 12:10 PM
Updated 07/09/2023, 06:31 AM
  • Warren Buffett's cash pile has reached its lowest level since 2019
  • The Oracle of Omaha has bought a total of 16 stocks this year
  • Like him, I believe it is a good time to buy—if you have the correct strategy

Last night, I spent about ten minutes reviewing the 2005 annual Berkshire Hathaway (NYSE:BRKa) (NYSE:BRKb) meeting, in which Warren Buffett and his partner Charlie Munger shared their views on the U.S. economy ahead of the Global Financial Crisis.

It wasn't until more than two years later that the markets collapsed. Yet, several investors were already asking about inflation, recession, the possible collapse of markets, yield curve inversion, and a thousand possible scenarios.

Now, I think Buffett's answer, which lasted only 30 seconds, is worth more than any investment textbook or supposed expert we may have to deal with; here is a very concise excerpt of what he said:

"We are not good at predicting the market, but we generally knew that there were several very good deals in the 1970s and that the markets went crazy in the late 1990s. But we never waste time thinking or talking about how the stock market will go from here on out because we don't know."

As Munger added:

"I've seen many people miss opportunities because they focus on a single economic variable or a single problem the country faces and forget about the good things. But if you buy a great business at an attractive price, it's crazy to say: 'I'll buy it tomorrow because maybe it will be cheaper if the world goes to hell.' We have never operated that way; we have never decided not to buy a business we liked because of the market view."

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There will always be reasons to sell, but more generally, if you are an investor—and therefore a buyer with a medium- to long-term horizon—, you should buy when prices fall.

That is exactly what Buffett is doing right now. The chart below shows the sharp drop in Berkshire Hathaway's cash holdings and short-term investments since the beginning of the year. It was mainly used for the purchase of 16 stocks:

  • Occidental Petroleum (NYSE:OXY)
  • Chevron (NYSE:CVX)
  • HP (NYSE:HPQ)
  • Paramount Global (NASDAQ:PARA)
  • Citigroup (NYSE:C)
  • Activision Blizzard (NASDAQ:ATVI)
  • Ally Financial (NYSE:ALLY)
  • Celanese (NYSE:CE)
  • Apple (NASDAQ:AAPL)
  • Formula One Group (NASDAQ:FWONA)
  • Floor & Decor (NYSE:FND)
  • McKesson (NYSE:MCK)
  • Markel (NYSE:MKL)
  • RH (NYSE:RH)
  • General Motors (NYSE:GM)
  • Berkshire Hathaway (buybacks)

Berkshire Hathaway Cash And Short-Term Investments

Source: Ycharts

InvestingPro provides a more detailed view of Warren Buffett's holdings, sector concentration, SEC filings, and performance. Warren Buffett's Current Top-6 Holdings

Source: InvestingPro

I have often repeated in my analyses the objection that liquidity is not infinite and that you cannot keep buying unless you are a millionaire.

However, once you have set up a well-planned and intelligent strategy, the thing is straightforward. I will tell you mine to help avoid doubt: at the end of 2021, I had about 30% in cash—primarily due to sky-high valuations.

My holding period is at least until 2030; I plan to continue to buy at every 10/15% drop, and even if the markets drop up to 50-60%, I still would have entered at reasonable levels on a long-term horizon.

Do you know who is worried about declines? Those who don't know what they are doing in the markets, those who don't know them, those who can't handle volatility, those who don't plan. And do you know why?

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Because their focus and attention are on something that is simply impossible to know, which is how the markets will do one week, one month, or a year from now.

Disclosure: the author doesn't own any of the securities mentioned in this article.

Latest comments

Hello Francesco. Market analysis is a four-sided table: fundamental, macro, quant, and technical analysis. Each school of thought has a place at the table. You espouse fundamental analysis alone. That's cool. I incorporate macro and technical analysis, as well. I've been writing for Investing for 5.5 years and published over 2,300 articles. I'd like to think that those who follow me don't think that I "don't know what I'm doing". Market forecasts are not about *knowing* what will happen but improving your odds to side with statistics. My calls this year included the stock market, oil, gold, and BTC declines while being bullish on the dollar. Happy Trading!
Billionaires don't need money, if they have COLLATERAL and Credit. Have those 2.and when U R 90 years old or older u can do as u want.
Comments (24) above,  comments (17) below and only 10 comments showing.  What does that tell you about Francesco Casarella and his investment bias?
Remember , Amd , nvda move with Tesla . You welcome .Going long @ AMD here
and yet there are also good investors who time it right or relatively right
Buy when there’s blood in the streets, even if the blood is your own.“ rothschild
the best article of the year. buy when you see blood on the street.
I really like this article. I'm going to read it again.
It's called senility! If he like it at 100 he will love it at 50!
They have lots of money so they can afford to take risks most ordinary folks cant
Maybe he thinks the war is ending soon.
Nobody here has the Oracle's staying power, so...
If it's good enough for him it's good enough for me. I'm surprised he bought apple though. The price hasn't gone down much. Unless he bought in the 130's back at spx lows?
Well said Francesco 👍. As many things in life what suits one may not suit others. People try to apply such principles as buy and hold without considering their position and time. Oracle of Omaha has staying power. He may buy anything worth buying and the *******may freeze over but he's the ability to wait till it thaws. Ask yourselves do you have that staying power? That is the secret of long-term investment 😉
When was the last time you read an article about a bad trade that Buffet or Munger made?  If you somehow believe they only make money on every stock you’re incredibly naïve.  Don't fall prey to value investings major flaw and buy during a bear market.  Charlie Munger did this recently with BABA. It’s a fact that Munger lost approx. 40 MILLION on BABA. He ignored the China bear market and bought near the high of the first bear market retracement and again later somewhere around $200.  The Hang Seng is still in a bear market.  Munger bailed and became another bag holder.  If you insist on value investing combine it with overall market timing.  For example, use a long term moving average.  It will get you closer to your goal than blind dollar cost averaging and save and make you a bundle of money and keep you from losing your shirt or blowing up your account.
 Losing $40M is beyond your imagination but what's the ratio of that loss in relation to the total invested at that time ?
 Losing $40M is beyond your imagination but what's the ratio of that loss in relation to the total invested at that time ?
It doesn't matter what the ",ratio" is. It was a bad trade based upon a false principle. The pain and suffering of thosr who followed him and lost big bucks is littered all over stocktwits.
Lots of these are inflation plays, arbitrage or expanding current positions. I don’t draw the conclusion that the market in general is cheap.
Duying bips 🧠
hi
When you're mega rich, you can do anything you want. Most aren't in that position and have to be more careful
you dont need to be rich, you only need a constant cashflow for buying a litte every week adding the shares you can afford looking for averaging the best buy price, Its the strategy more important than the capital.
The common sense strategy I've been using for 8 years is buy when the market goes up, short SPY when the market goes down.  Price and trend are right 100% of the time.
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