Buffett's reason for selling stocks revealed

Source: Barren Chinese

This year, the U.S. stock market has been sold off, proving the foresight of Berkshire's net selling of stocks last year, known as the "Omaha Prophet," Warren Buffett's skill is undiminished.

Now it's Buffett's turn to say "I told you so."

At the end of last year, when the S&P 500 hit more than 50 closing highs, Berkshire Hathaway's CEO Buffett was busy selling stocks, a move that puzzled many market observers.

Now it seems that there is an answer.

The decline in the US stock market in 2025 proved the foresight of Berkshire's stock buying in the fourth quarter of last year.

According to Berkshire's recent 13-F filing, Buffett went against the market's bullish sentiment at the end of last year, selling approximately $5 billion worth of Bank of America (BAC) shares and $3 billion worth of Citigroup (C) shares in the fourth quarter, while significantly reducing holdings in Brazilian fintech company NU Holdings (NU), cable TV operator Charter Communications (CHTR), and Sirius XM (SIRI) stocks.

In the fourth quarter, Buffett did not continue to sell heavily-weighted stocks such as Apple (AAPL). Meanwhile, the newly established liquor manufacturer Constellation Brands (STZ) became the only large-scale purchase of the quarter. Overall, Berkshire Hathaway was a net seller of stocks in 2024, with more cash on hand than any other American company.

After Berkshire Hathaway disclosed its 13-F filing in mid-February this year, Andrew Barry, a writer for Barron's who has long tracked Buffett's investment moves, wrote in an article, 'Buffett has gone against the market in the past, including during the late 1990s internet bubble. History has shown that his decisions were correct, and this time may also be correct.'

This article was published not long ago, and this situation happened: since Berkshire disclosed the 13-F document on February 14, the S&P 500 has fallen by about 5%. In fact, the S&P 500 has given back all the gains that occurred after the US presidential election in the fourth quarter of last year.

In retrospect, it should be easy for us to understand why Buffett sold stocks when the stock market hit new highs. While some fund managers (such as Bill Ackman) criticized Buffett for being too conservative in fund allocation in recent years, there were plenty of signs in the fourth quarter of last year that the stock market might experience turbulence. President Trump did not hide his plan to set tariff policies at his own will during his second term, and many market observers said that Trump 'didn't mean it', but the fact is, he did mean it.

The plot of the stock market falling due to Trump's tariffs in 2018 is playing out again.

Buffett may have already been aware of the trade tensions in the fourth quarter of last year. He recently said that tariffs are a "war act" and that the inflation problem in the United States will become more severe as a result. Even without considering the tariff issue, the stock market does not like uncertainty. The sudden introduction of a policy and various noisy news was one of the characteristics of the first Trump administration, and this plot is playing out again.

However, Buffett's investment decisions may reflect much more than politics.

When autumn arrived last year, the US inflation rate was still higher than the 2% target set by the Federal Reserve, indicating that the stock market had reduced its expectations of a rate cut by the Federal Reserve at the end of last year. Inflation poses a headwind to consumer spending, which is the main driver of the US economy. Any signs of the Federal Reserve 'turning hawkish' will trigger concerns. The lackluster performance of the market in the third quarter of last year indicates that when investor sentiment changes, the market can decline very rapidly.

But for Buffett, the biggest reason that prompted him to sell stocks may be valuation. As the US stock market continues to hit new highs throughout the fourth quarter, stocks are becoming increasingly expensive, not only relative to their own historical levels, but also relative to stocks in other countries and regions. US stocks have been "priced to perfection," which is not the phenomenon that value investors like Buffett like to see.

Similarly, insiders at companies also acted like Buffett, quickly selling to take profits during the stock market rally in the fourth quarter of last year.

This does not mean that investors should stay away from US stocks. If history can be a guide, the policies of the current Trump administration may change rapidly, and Trump has always closely followed the performance of the stock market in the past. Many strategists still believe that by the end of this year, the S&P 500 is likely to rebound to well above 6000 points, no matter how long it takes to recover.

Buffett himself has not given up on stocks, writing in this year's shareholder letter, 'Although some commentators have mentioned that Berkshire has accumulated a lot of cash, most of Berkshire's shareholders' funds have been invested in stocks, and our preference for stocks will not change.'

The current sell-off in the US stock market indicates that Warren Buffett, known as the 'Oracle of Omaha,' is still going strong. Some say Buffett's investment decisions are too conservative, but in fact, Buffett, who has a huge fortune, can be as cautious as he wants.