Warren Buffett’s sale of more than $3.8 billion in Bank of America stock in 2 weeks is an ominous and unmistakable warning to Wall Street

Among the billionaire investors on Wall Street, Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) CEO Warren Buffett is arguably in a class of his own. In a world where investors are using advanced mapping software and artificial intelligence (AI) in an effort to gain a competitive edge, Buffett and his team relied on old fundamentals and detective work to locate amazing businesses.

Since taking the reins as CEO in 1965, the aptly named “Oracle of Omaha” has overseen a cumulative return of nearly 5,200,000 percent for Berkshire’s ( BRK.A ) Class A shareholders. It’s no surprise why professional and everyday investors often look forward to details about the stocks Buffett and his team have bought and sold.

Although Berkshire Hathaway’s Form 13F — the document that tells investors what Wall Street’s top money managers bought and sold last quarter — is due in just over a week, investors don’t always have to wait three whole months. for clues about what Buffett and his team have been up to. For example, when Berkshire owns a 10% or greater stake in a public company, it is required to file a Form 4 with the Securities and Exchange Commission (SEC) each time shares are bought or sold.

Berkshire’s recent Form 4 filings point to an ominous and unmistakable warning to Wall Street from the Oracle of Omaha and his trusted assistants Todd Combs and Ted Weschler.

Warren Buffett sold shares of Bank of America for 12 consecutive trading sessions

For years, the banking giant bank of america (NYSE: BAC) it maintained its position as the second-largest holding in Berkshire’s $395 billion 44-stock investment portfolio, behind only technology stocks. Apple (NASDAQ:AAPL).

The cyclical nature of financial stocks — that is, the fact that they can take advantage of lasting economic expansions substantial longer than recessions — along with their robust capital return programs, makes them attractive to the Oracle of Omaha. Bank of America, in particular, is the most interest-sensitive of America’s largest money-center banks. It enjoyed a bumper benefit to net interest income after the Federal Reserve’s most aggressive rate-hike cycle in four decades.

However, Buffett’s love affair with Bank of America appears to be in question. Four Form 4s recently filed with the SEC show that Berkshire Hathaway’s brightest investment minds sold shares of BofA stock for 12 consecutive trading sessions (July 17-August 1). In total, 90,422,124 shares of Bank of America stock were sold, amounting to proceeds of approximately $3.82 billion.

There are a number of legitimate reasons why Buffett and his investment team reduced Berkshire’s stake in Bank of America by about 9% in two weeks.

Profit taking is one possible answer. During Berkshire’s most recent annual shareholder meeting, Buffett opined that corporate tax rates could rise in the future. The prospect of higher corporate tax rates forced the sale of more than 116 million shares of Apple in the first quarter, along with a nearly 50% discount in the tech goliath in the second quarter, and could encourage a cut in BofA in the third quarter . .

Bank of America’s interest rate sensitivity could also explain 12 consecutive business days of selling activity. Just as BofA has enjoyed a huge benefit from rising interest rates, waiting for a rate easing cycle to begin in September could cause net interest income to decline faster than its peers.

But more than anything, 12 consecutive days of selling in Bank of America stock seem to signal that value is getting harder to find on Wall Street. With BofA now trading above its book value, a rarity over the past 15 years, it may not be as attractive to the Oracle of Omaha and/or his team.

Warren Buffett does not want to be part of the “casino” on Wall Street

Believe it or not, Buffett’s huge sell-off in both Apple and Bank of America was somewhat telegraphed earlier this year when Oracle of Omaha released its annual letter to shareholders. While this letter is often used to promote a long-term ethos and praise Berkshire’s “forever” holdings, it also served as a cautionary tale for the investing community.

In his 2023 letter to shareholders, Buffett talked about casino-like behavior he wants no part of. Berkshire’s boss said:

Although I can’t read minds, this sounds like a sweeping admission that stocks are expensive. In his nearly six decades as CEO, Buffett has emphasized patience in waiting for amazing businesses to land at attractive prices. The $277 billion (and growing) in collective cash, cash equivalents and US Treasuries on Berkshire’s balance sheet (as of June 30) indicates the lack of value that the Oracle of Omaha and his crew see.

To add to this point, Warren Buffett has been a net seller of stocks for Seven consecutive quarters as of June 30, 2024 (dollar figure represents net sales activity for a listed quarter):

• Q4 2022: 14.64 billion dollars

• Q1 2023: 10.41 billion dollars

• Q2 2023: 7.981 billion dollars

• Q3 2023: $5.253 billion

• Q4 2023: $0.525 billion

• Q1 2024: $17.281 billion

• Q2 2024: $75.536 billion

For those of you without calculators handy, that equates to $131.6 billion in cumulative net sales activity as of October 1, 2022.

The reality for Buffett, along with investors as a whole, is that the stock market is historically expensive.

The S&P 500Shiller’s price-to-earnings (P/E) ratio, also known as the cyclically-adjusted price-to-earnings ratio (Cape ratio), has recently reached a level that has only been seen a few times recently. 153 years.

While most investors are likely familiar with the traditional P/E ratio, which divides a company’s stock price by its trailing 12-month earnings per share, the Shiller P/E is based on average inflation-adjusted earnings over the past 10 years. Using 10 years of earnings history smooths out the effect of one-off events that might otherwise negatively affect valuation models.

On August 1, 2024, Shiller’s profit margin ended at 35.13. There have been only six occasions since early 1871 that the S&P 500’s Shiller price/earnings ratio has exceeded 30 during a bull market rally. Following the previous five incidents, the S&P 500, Dow Jones Industrial Averageand/or Nasdaq Composite all down 20% to 89%. While the Shiller P/E ratio does not provide assistance in forecasting when big declines will occur on Wall Street, this valuation metric has an impeccable track record of portending trouble for Wall Street.

Warren Buffett’s willingness to withdraw from the proverbial casino and significantly reduce his company’s main holdings in Apple and now Bank of America strongly suggests he is struggling to find value. This is a concern that investors would be wise not to ignore.

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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Sean Williams holds positions in Bank of America. The Motley Fool has positions in and recommends Apple, Bank of America and Berkshire Hathaway. The Motley Fool has a disclosure policy.

Warren Buffett’s sale of more than $3.8 billion in Bank of America stock in 2 weeks is an unmistakable ominous warning for Wall Street was originally published by The Motley Fool