Veteran fund manager views Warren Buffett moves as worrisome

BRK.A)  have generated annualized returns of 32% for the past 12 months, 19% for the past three years, 19% also for five years, 13% for 10 years and 14% for 15 years.

The first three numbers beat the S&P 500 handily, and the last two beat it narrowly.

Berkshire’s performance  (BRK.B)  is even more impressive for the ultra-long term. The stock produced average annual returns of 20% from 1965 through 2023, doubling the S&P 500’s 10% returns.

Buffett: Avoid egregious errors

One of the keys to investment success is avoiding big boo-boos, Buffett says.

“Thanks to the American tailwind and the power of compound interest, the arena in which we operate has been – and will be – rewarding if you make a couple of good decisions during a lifetime and avoid serious mistakes,” he wrote in his February letter to Berkshire shareholders.

Related: Warren Buffett’s Berkshire Hathaway just joined exclusive club

A big issue now for Buffett and Berkshire is what to do with the company’s $277 billion (as of June 30) cash hoard. Buying companies with that money won’t be easy, Buffett noted in the shareholder letter.

“There remain only a handful of companies in this country capable of truly moving the needle at Berkshire, and they have been endlessly picked over by us and by others,” he said.

Doug Kass’s take on Buffett’s stock sales

TheStreet Pro columnist Doug Kass just published an analysis of Buffett’s influence on the stock market. Kass has worked as a hedge fund manager since the 1970s, including a stint as director of research at the legendary investor Leon Cooperman’s Omega Advisors.

Kass cites a New York Times column by Buffett in October 2008 during the financial crisis that sent stocks plunging. Buffett emphasized his belief in U.S. stocks.

“I’ve been buying American stocks. This is my personal account,” he wrote. Buffett also repeated his famous dictum: “Be fearful when others are greedy, and be greedy when others are fearful.”

Related: Warren Buffett buys a beautifully cheap stock

The stock market began rebounding five months after the column, and the rally has largely continued up to now.

But in recent months, Buffett has sold some stocks. And that’s ominous for the market, Kass says. (To be sure, Berkshire has bought a few stocks too.)

Buffett unloads Apple and Bank of America

Kass specifically cites Apple  (AAPL) , Berkshire’s biggest holding, and Bank of America  (BAC) . Berkshire has sold $6.2 billion of B of A since mid-July. And it shed about $90 billion of Apple in the first half.

“Selling ‘forever’ holdings like Apple and B of A is not Buffett-esque,” Kass said, referring to Buffett’s affinity for keeping stocks long term.

Berkshire’s Apple shares grew to a disproportionately large percentage of its investment portfolio, Kass said. But the accelerated sale of nearly half this position in the second quarter seems an important statement, Kass said. “And it’s at the polar opposite of his market view when he was buying equities 16 years ago.”

More Warren Buffett:

• Warren Buffett buys a beautifully cheap stock

• What Buffett’s huge Apple sale really means

• Warren Buffett’s Berkshire sheds stock of major bank

Looking at Bank of America, Kass said Buffett’s sizeable, steady sale of its shares “raises even more questions about The Oracle’s view of the global economy and our capital markets.” (Buffett is nicknamed the Oracle of Omaha, as he lives there.)

“Most likely, the [Apple and B of A] stock sales relate to a much more ursine economic and market view than Warren is saying out loud,” Kass said.

“Buffett’s favorite stock market indicator, the market capitalization-to-GDP ratio, has been signaling sell for months.”

Bottom line: “It might be time to Sell American, He Is,” Kass said. That was a riff on the title of Buffett’s 2008 New York Times column: “Buy American, I Am.”

The author owns shares of Johnson & Johnson, Verizon, Apple and Bank of America.

Related: Veteran fund manager sees world of pain coming for stocks