In 2024, Warren Buffet liquidated a staggering $143 billion of stocks, but his latest $3 billion acquisitions suggest a reassuring commitment to the market for onlookers.
Flippin' Buffet's Stock Strategy in 24/24:
Old Man Buffet ain't shy about his stock game, y'all. His 2024 letter to shareholders left one thing crystal clear: Buffet prefers the big majority of Berkshire Hathaway's dough investing in equities. Sounds simple, right? But, it's a bit complicated when you consider his portfolio changes from last year.
Buffet sold over $140 billion worth of public stocks, slashing substantial parts of its stake in tech giants like Apple and Bank of America. Meanwhile, he only added $9.3 billion in fresh investments. That's the weird part - his stock preference and his actions in 2024 aren't quite on the same page. Here's what's really goin' on:
Buffet's Fresh Investments
Berkshire Hathaway submitted form 13F to the SEC in mid-February, spillin' the beans about its holdings as of the end of 2024. The filing showed six new purchases in the fourth quarter. Now, let me shine a light on the other five aside from the old favorite Occidental Petroleum:
- 5.6 million shares of Constellation Brands
- 1.1 million shares of Domino's Pizza
- 12.3 million shares of Sirius XM
- 456,000 shares of Verisign
- 195,000 shares of Pool Corp.
Buffet invested a whopping $3 billion across these five companies in the fourth quarter based on Berkshire's statement of cash flows and SEC disclosures.
What's the big message here? The smaller companies on this list - even Constellation Brand, the biggest of the pack with a market cap of $32 billion - are all a far cry from giants like Apple ($3.6 trillion market cap) and Bank of America ($339 billion market cap). If you crunch the numbers, Buffet could've bought out the whole kit and caboodle of these five companies with the cash from his 2024 stock sales, even after coughin' up taxes and leavin' some change in his pocket.
The Hidden Message for Investors
Buffet ain't tellin' his fellow investors to clear out of the stock market because of his $134 billion net sale of equities in 2024. That's just his way of sayin' it's time to tighten the belt and choose investments wisely. And if you take a closer look at Buffet's purchases, the preference for smaller companies jumps right out at ya.
This preference aligns with the current market valuations for mid-cap and small-cap indexes relative to the large-cap S&P 500. The S&P 500 is currently tradin' for a forward price-to-earnings (P/E) ratio of 21.8, one of the highest valuations of the index since the dot-com bubble. It don't necessarily mean the sky is fallin', but it does mean findin' large-cap stocks trading below their intrinsic value is as easy as findin' a needle in a haystack.
By comparison, the S&P 400 mid-cap index and the S&P 600 small-cap index are tradin' for forward P/Es of 15.6 and 15.3, respectively. That means there are a whole lot more attractive value stocks in the small- and mid-cap indexes. Unfortunately for Buffet, those stocks can't handle a buyer whose idea of a "small investment" is several hundred million dollars. But they could provide a whole lot of upside for an individual investor with a more modest portfolio.
If you're not up for researchin' individual stocks, you could diversify away from more expensive large-cap stocks by buyin' an index fund. Vanguard offers the Vanguard Extended Market ETF (VXF 0.58%), which tracks the performance of virtually all U.S. stocks not included in the S&P 500. You could also buy index funds that track mid-cap and small-cap indexes.
When you're followin' Buffet's moves in the market, remember: he's playin' a different game than most individual investors. There are a whole lot more options available for people like us, and if you pay attention to what Buffet says and how he manages his portfolio within his own constraints, you could end up raking in the cash in the long run.
- Despite selling over $140 billion worth of public stocks, Warren Buffet's fresh investments in 2023 show a preference for smaller companies, with Berkshire Hathaway purchasing shares in Constellation Brands, Domino's Pizza, Sirius XM, Verisign, and Pool Corp.
- The market valuations for mid-cap and small-cap indexes are significantly lower than the large-cap S&P 500, suggesting that more attractive value stocks can be found within these smaller indexes.
- The S&P 500 is currently trading at a higher forward price-to-earnings ratio compared to the S&P 400 mid-cap index and the S&P 600 small-cap index.
- For individual investors who prefer not to research individual stocks, investment options like the Vanguard Extended Market ETF or index funds that track mid-cap and small-cap indexes could provide diversification away from more expensive large-cap stocks.
