Investing

Buffett's Behavior Signals Something Bad Is Coming for the S&P 500 (VOO)

Austin Smith

Published: November 19, 2024 10:40 am

Key Points:

• Mostly in short-term treasuries rather than fresh stocks, Warren Buffett is carrying a large sum of cash—roughly $325 billion.
• Given the S&P 500 trading at a high 28 times earnings while the historical norm is closer to 18-19 times earnings, Buffett’s cautious approach shows he might be worried about current market valuations.
• Also: Are you ahead, or behind on retirement? Take this quiz to see for yourself (sponsored)

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Transcript:

[00:00:00] Doug: So here’s a question that’s being asked and it has been for several days. Why is Warren Buffett now? He’s not entirely in cash, but he’s in cash a lot. I mean He’s a buyer of what he thinks are long term good brand companies, right? And I don’t see, I don’t see him writing a lot of checks to buy stocks and companies like that.

[00:00:26] Doug: What’s the matter?

[00:00:28] Lee: Well, again, 325 billion in cash. And again, for those viewing right now, that’s not in like a savings account. It’s probably in one year treasuries, six month, three month treasuries, because they’re all yielding. four and a half, 470 in that ballpark, and the money’s safe.

[00:00:49] Lee: And the only thing he’s buying as he continues to dump his apple and B of A steak is Domino’s pizza. And he bought it. He bought a fair amount of it. He bought 3. 6 percent of the float. It was a pretty good chunk of dough. And, other than that, the only other thing he bought that was in his recent filing, his 13F, was a pool equipment company.

[00:01:13] Lee: called Pool Inc. And, there’s something going on there. He must be very worried. And these last couple of days, and it could be a while, I mean, we had a very bad week after the election rally and. he’s got to be seeing something out there that he doesn’t like. And the fact that the S and P 500 trades at like 28 times earnings, and that’s just, I don’t care what any constantly bullish wall street, pundit has to say, there has to be a reversal to the mean.

[00:01:49] Lee: And, the mean isn’t 28 times earnings. So I think he’s very concerned.

[00:01:56] Doug: I think the mean is 18.

[00:01:58] Lee: 18 to 19. Yeah,

[00:02:00] Doug: I think that’s the mean on the SMP. Well, at least Buffett is consistent though. Domino’s is a multi decade, well respected, well loved brand. They’re everywhere. And they do have a huge moat.

[00:02:15] Doug: There are only a couple of pizza chains. Building a pizza chain from scratch would cost billions of dollars. And even then, you’d lose money the whole way. So I know he’s got a lot of cash, but the one investment he made of substance is in keeping with the Warren Buffett philosophy.

[00:02:33] Lee: Well, I mean, buying dominoes, that’s just totally defensive play. I mean, totally defensive. I mean, it would be more understandable if he went in and, bought some Boeing (NYSE: BA) or bought some something where he saw a ton of upside because of the problems they’ve had, but, or even Starbucks, which is, going nowhere, but no, he’s going to go for the pizza and he’s going to stick with that and have pizza with his Coke and that’s going to be it.

[00:03:01] Lee: It’s okay with me. Yeah, me too. But we got to keep a close eye on this, Doug, because something’s wrong. Something doesn’t smell right. Because I mean, I followed Buffett for a long, time as a view because we both have been in this business for 3040 years, and he’s never had this much cash.

[00:03:20] Doug: Nope, he hasn’t. So we’ll come back to this almost every time we talk unless there’s a, well, we’ll talk if he makes a big play. We’ll probably come back that day.

[00:03:31] Lee: I think he senses there’s one around the corner and maybe not too far away.