Will the bubble burst? The investor who claims – Buffett’s moves are a sign of things to come

Warren Buffett, investment fund manager Berkshire Hathaway is considered one of the largest investors in the world. He is known for his patience, which is expressed, among other things, in searching for undervalued stocks that can be held for the long term.

Every quarter, when the financial reports are submitted and published, private investors and investment managers look at the stocks, investments and decisions made by the super investor, trying to learn from them.

One of them is investment manager Bill Smid, owner of the “Smid Investments” company. Smid is a big fan of Warren Buffett. In the last 15 years, he has imitated Berkshire Hathaway’s investment strategy, and even admits it. He recently told Business Insider magazine that “in investments, it’s better to know who is a smart investor – than to try to be a smart investor yourself.”

This strategy seems to be working for Smid. In the last 15 years, it has produced better results than 99% of the companies in the field, according to data from the Morning Star website. In addition, he managed to beat the return of the S&P 500 index – with an average annual return of 14%, compared to 13.8% in the index.

While Smid enjoyed the ups and downs of the markets, under the auspices of the strategy of Buffett and his former partner Charlie Munger, he also learned to recognize when the pair of super investors were preparing for a market crash. And according to him – this is happening right now.

According to Smid’s analysis, among the evidence that Buffett is preparing for a fall in the markets, one can find the exit from Apple and Bank of America shares – two investments that occupy a significant share of his portfolio.

In the second quarter of the year, which ended in June, Buffett sold about half of his holding in the stock dark worth about 88 billion dollars. At the same time, for the first time since 2019, Buffett also sold shares Bank of America worth $2.3 billion in six days.

With the sales, Berkshire’s cash pile reached a new high. and was about 276.9 billion dollars. A sharp jump compared to the $189 billion in cash that the investment company held in the first quarter of the year.

Buffett is acting like it’s 1999

According to Smid, there are many similarities between Buffett’s actions now and those he took in 1999. 25 years ago – at the height of the dot-com bubble, Buffett avoided the hype around technology companies, and even warned that the increases in the market would not last forever. Between July and September ’99, Buffett published several talks about the state of the market, which were later compiled by Fortune magazine. At that time, Buffett claimed that the increases in the market lie in two reasons – a decrease in long-term interest rates, and an increase in corporate profits. However, Buffett explained, the increases in stocks cannot continue forever – for the simple reason that even if interest rates continue to fall, corporations will have difficulty maintaining growth in profitability. Indeed, in the following years the S&P 500 crashed by 50%.

Since then, investors have enjoyed 15 years of low interest rates and rising corporate profits, but all of that worries Smid, and he says Buffett, too. “Look at his behavior,” he told Business Insider. “He’s getting ready for the snowball.” By this, Smid means Lua, in which declines in the markets will frighten the investors – who will sell their holdings, and God forbid.

“At some point the wheel turns,” says Smid. “And many of the signs that Buffett saw in 1999 are now present in the market.”

Micro, not macro

However, not everyone agrees with Smid’s approach. Ed Bortago, a private investor who has held Berkshire shares for a long time, told CNBC that the sale of shares in Apple and Bank of America does not necessarily indicate that Buffett is preparing for a radical fall in the markets. “The cut does not come as a result of a macro view of the markets,” said Bortago. “This is a thought that stands in complete contrast to Buffett’s conduct throughout history.”

So why is he selling? According to Bortago, the sale of Apple and Bank of America shares comes because both have become too large, and Buffett’s investment portfolio leans on them in an unbalanced way. For example, at the end of last year, Apple accounted for about half of the value of Buffett’s investment portfolio. Regarding Bank of America, according to Bortago, it can be assumed that Buffett sold his holdings to hold less than 10% of the stock – the threshold at which he must report any significant change in holdings almost immediately.