Key Points:

• Most big companies seem overvalued, with the S&P 500 trading at high multiples.
• Warren Buffett’s recent stock sales hint he’s preparing for a potential market downturn.
• He may be waiting for a major correction to make big acquisitions, as he did in 2008.
• When things turn down, dividend stocks can be a safe port in the storm. See the 2 Dividend Legends to buy and hold forever

Lee and Doug continue their analysis of Warren Buffett’s recent financial moves, particularly his large cash reserves and the significant sale of his Apple (NASDAQ: AAPL) holdings. They speculate that Buffett’s decision to hold such a large amount of cash might indicate his belief that most large public companies are overvalued and that a recession could further decrease their valuations. They also discuss the possibility that Buffett strategically sold newer Apple shares with a higher cost basis while keeping his older, more profitable shares. The conversation highlights the potential for Buffett to make significant acquisitions or bail out large companies during a future market downturn, similar to his actions during the 2008 financial crisis. They plan to revisit this topic after Buffett’s next SEC filing to see if there are any new developments in his investment strategy.

Transcript:

Listen, if you said to me most public companies at this point of any size are fully or overvalued in the stock market, I’d say there’s a 90% chance if you look across big public companies that that’s true.

So you’ve got overvalued big cap companies, which would be the things he shopped for.

And if he’s thinking recession, he’s got something that’s overvalued moving into an economy that’s going to suddenly knock all valuations down.

Yeah.

And it would be interesting to see, you know, which shares of Apple he designated.

I bet it wasn’t the shares he bought in 2016.

I bet he took perhaps less profit on some of the newer additions from 2021, maybe through there, and scaled out of some of that and kept the positions that he started to put in eight years ago that have a lower cost basis.

Yeah, it’s pretty interesting.

The S&P 500 on an earnings basis for 2024 is trading at like 23 or 24 times earnings.

And those estimates have been the same since 2022 when it traded at like 14 times earnings.

So we’re way overbought.

And like you said, most big organizations are fully valued at this juncture.

And it’ll be really interesting to see what he does.

That’s the biggest cash pile he’s ever had.

Well, when you think about it, he could pay cash for huge.

He could buy, yes, enough cash to buy Ford Motor Company five times over.

He could buy every major car company except for Tesla in the world with you.

He could buy Toyota, GM, and Ford with that amount of cash, which you have to love.

Well, and he could take a swing at Boeing or something like that with that kind of cash and the ability to finance it.

But I would suspect that he senses something brewing, probably like he did in 07 and 08.

And remember, he bailed out Goldman Sachs.

He bailed out Bank of America because he went in there when they had no other source for funding.

And, you know, maybe he’s going to play J.P. Morgan again and, you know, look to bail out somebody big.

Yeah.

And he got very rich deals on those things when it came to it.

Well, he cashed in.

He got stock and preferred stock.

He got preferred.

He got preferred that was ringing the cash register every day.

Probably some that still does.

Yeah, that’s probably true.

Well, look, his statements come out as the government makes him at the end of every quarter, so let’s get back to this when he files with the SEC what his holdings were for Q3, the current quarter.

Yeah, it’ll be interesting to see if there’s more selling or if he adds to anything.

Does he go in and add to Chevron because it’s fallen off as oil prices have come down?

Does he buy more of Occidental, which I think he already owns 20% of or 22% of?

Does he want to take that up and take that private?

Could that be possible?

Or is he really looking for another big 2008 sort of sell-off where he’s going to just sit there and wait until there’s some proverbial blood in the streets and go in again?

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