Buffett significantly reduced holdings in many US stocks, including $Apple (AAPL.US)$ , and has sold for seven consecutive quarters, with an accelerated sale in the second quarter of this year, totaling $75 billion in stock sales.

In addition, Berkshire's financial report shows that at the end of the second quarter, the institution held $234.6 billion in short-term US Treasury bills and also had over $42 billion in cash and cash equivalents. At present, the stock god's cash reserves have reached a record high of $276.9 billion.

What is the concept of $276.9 billion? Converted simply by current market cap, it is roughly equivalent to the stock god being able to easily buy " $Alibaba (BABA.US)$ +$NetEase (NTES.US)$+ $JD.com (JD.US)$ " three Chinese big tech giants.

By contrast, as of July 31, the scale of US Treasury bonds with a term of less than one year held by the US Federal Reserve is $195.3 billion. This also means that Berkshire has already exceeded the Federal Reserve in its holdings of short-term US bonds.

During the turmoil of the US stock market, the stock god conveyed a pessimistic signal.

As a billionaire stock god who has dominated the world's stock markets for more than 60 years, Buffett has created an astonishing myth of wealth creation, which is due to his accurate vision and value judgment.

As is well known, Buffett has indicated that he will buy short-term US Treasury bills through the sale of US bonds during an economic crisis. Although the return on Treasury bills is usually not as high as that seen by investors from higher-risk investments such as stocks, the return on short-term bonds has risen due to the Federal Reserve maintaining interest rates in the range of 5.25% to 5.5%. As of August 2, the yield on three-month Treasury bills was 5.05%, on six-month Treasury bills was 4.68%, and on 12-month Treasury bills was 4.18%.

It is estimated that the approximately 5% yield on these Treasury bills will bring about $12 billion in risk-free income to Berkshire Hathaway's large holdings of US Treasury bills each year, or approximately $3 billion in quarterly income.

The behavior of hoarding cash and selling stocks in this round has undoubtedly been interpreted by the market as Buffett having a pessimistic attitude towards the US economy and market. In addition to the 'stock god' conveying a pessimistic attitude towards the US economy through actions, more and more Wall Street professionals have also begun to worry about the risk of US economic recession.

Last Sunday, Goldman Sachs'economic team raised its forecast of the likelihood of a US economic downturn in the next 12 months from 15% to 25%, and JPMorgan recently raised the possibility of a US economic downturn by the end of this year from 25% at the beginning of July to 35%, higher than last month's 25% forecast.

There are currently multiple opinions on when this adjustment will end.

Morgan Stanley analyst Thomas Salopek issued a research report reviewing the history of market bottoms, noting that the market does not currently have a series of complete "bottoming signals", and the next downturn may deepen further. Currently, three indicators show that the market is falling: the deterioration of credit spreads, the steepening of the US bond yield curve, and the leading rise of defensive sectors.

However, Bank of America has a different opinion. Savita Subramanian, head of Bank of America's stock and quantitative strategy, reassured the market, saying that the recent sell-off in US stocks is just a "common technical adjustment" and it is unlikely to turn into a comprehensive bear market. There have been no signs of the stock market topping out.

"Pullbacks above 5% are very common, occurring an average of three times per year since 1930 (this is the second time this year since April). Larger, double-digit declines are less frequent but still common, occurring once a year on average (most recently in the autumn of 2023)." Subramanian wrote in a report.

Saburramaniya suggests that investors should not worry about the current sell-off lasting longer, but should buy low and focus on purchasing high-quality stocks.

The secret of the stock god's invincibility: mastering the skill of selling at the high point

Looking back at Buffett's legendary investment career, the most impressive operation is his sharp skill of selling at the high point of the stock market.

• 1999 technology bubble: sticking to industries they don't understand

In 1999, the internet bubble reached its peak, but Buffett adhered to the principle of not making money outside his own capabilities and refused to invest in unfamiliar technology stocks. Despite being questioned, he insisted on not participating in "games where others have an advantage over me", and believed that the market value of US stocks had already exceeded economic growth by a large margin at that time, and that the performance of the Dow in the future 17 years would not be much better than that from 1964 to 1981, unless the market fell.

The stock market repeatedly challenged the stock god in 1999, when$S&P 500 Index (.SPX.US)$During the 66% surge of the NASDAQ index with a 21% growth, the market cap of Berkshire Hathaway fell nearly 20%, marking its second worst performance since 1990. Buffett was even featured on the cover of Barron's at the end of the year under the headline 'Warren, What Happened?', with an accompanying article that suggested 'after 30 years of unrivaled investment success, Buffett might have lost his touch'.

However, in March 2000, the internet bubble finally burst and shrunk back until 2001, and Buffett succeeded in getting out at the top.

• 2008 Financial Crisis: Others were fearful, he was greedy.

In 2008, the global financial crisis broke out, and the Dow Jones$SSE Industrial Index (000004.SH)$Starting in September and October 2008, Buffett began buying into Constellation Energy, Tungaloy (a Japanese auto parts manufacturer), Goldman Sachs, Wells Fargo and General Electric, companies which were all holding up well during the market downturn. For Wells Fargo's part, it acquired the troubled Wachovia for 15.1 billion U.S. dollars. After Buffett's purchases, the share price of Goldman Sachs fell from 125 dollars to 53 dollars, and General Electric fell from 22.15 dollars to 14.03 dollars. However, he only bought the preferred stock with a fixed annual return of 10%, so he would still receive a substantial profit every year, except if the company went bankrupt.

From September to October 2008, Buffett began to bottom fish, buying a lot of Constellation Energy, Japanese automaker Tungaloy, Goldman Sachs,$BYD Company Limited (002594.SZ)$After 'Buy American. I Am.' was published for five months, the US stock market began to rebound, leading to a bull market lasting for 10 years, during which Buffett and Berkshire Hathaway achieved asset leaps and earned more than 10 billion U.S. dollars in return on their investment during the financial crisis alone.

2020 Epidemic: Cash is King Waiting for Opportunities. When the COVID-19 pandemic broke out in 2020, the global stock market plunged. Berkshire Hathaway held a large amount of cash waiting for opportunities. After the epidemic, it began investing heavily in the Japanese stock market. Since 2020, it has invested 1.6 trillion yen in the five major trading companies, which has appreciated to 2.9 trillion yen as of the end of last year, generating profits of 8 billion U.S. dollars.

Buffett's investment career has had few losses. How did he do it? Looking at Buffett's investment career so far, there have only been two years of negative returns. Being able to avoid losses and prevent large losses is the key to ensuring long-term, huge returns.

• Buffett's investments do not involve asset allocation like Bridgewater Associates and other institutions. Instead, he is good at fund allocation. His early fund allocation primarily involved investing in three types of investments: undervalued securities, arbitrage, and investments aimed at acquiring controlling stakes in target companies.

The first type of investment is the well-known value investment, which involves finding a security whose price is significantly lower than its intrinsic value. However, as the market changes and the stock market continues to rise, the number and scale of undervalued securities decreases. When it becomes difficult to find enough attractive investment opportunities, Buffett increases his arbitrage investments. In poor years, Buffett relies on the contribution of arbitrage trading to maintain his market-beating performance and to avoid losses or reduce losses. Arbitrage investments do not require prices to be significantly lower than their value, but rather focus on safety.

The first type of investment can be converted into the third type of investment. Once he gains a controlling stake, Buffett no longer worries about market fluctuations but rather acts like a manager of the investment. Because of this, Buffett has very rigorous requirements for these two types of investment opportunities. At the same time, this caution has given Buffett the ability to heavily hold stocks.

Looking back at Buffett's investment career thus far, it has only taken two years to obtain negative returns. Being able to avoid losses or minimize large losses is key to ensuring long-term and substantial returns.

Although Buffett's investment is not like Bridgewater and other institutions that focus on asset allocation, he does focus on fund allocation. His initial fund allocation was mainly invested in three types of investment: investments in undervalued stocks, arbitrage investment, and investment for acquiring controlling stakes in target companies.

1. The first type is a well-known value investment, which is about finding securities whose price is much lower than their intrinsic value. However, as the market keeps changing, and as stock indices continue to rise and the market value gradually goes up, the number and scale of undervalued stocks may diminish. When there is a lack of attractive investment opportunities, Buffett increases his allocation of arbitrage investment.

2. When it is difficult to find enough and attractive investment opportunities, Buffett will increase arbitrage investment. And in$Dow Jones Industrial Average (.DJI.US)$In a bad year, Buffett mainly relies on the contribution of arbitrage trading to maintain his market-beating performance and to avoid losses or reduce losses. For arbitrage investments, the focus is not on low value relative to the price but rather on safety.

3. The first two types of investment can be converted into the third type of investments. Once he gains a controlling stake, Buffett no longer worries about market fluctuations but rather acts as a manager of the investment. It is because of this that Buffett has very demanding requirements for these two types of investment opportunities. At the same time, this caution has given Buffett the ability to heavily hold stocks.

There is an old saying: "Be afraid when others are greedy and greedy when others are afraid." In his nearly century-long investment career, Buffett has always adhered to this principle. Through precise fund allocation and safe investment, he has created one after another myth of investment.

In addition, Buffett has set his goal as long-term capital appreciation of the investment portfolio, with a high tolerance for short-term market fluctuations. Based on long-term goals, it is more appropriate not to measure risk with short-term market fluctuations, but to define risk with permanent loss of funds.

To address the risk of permanent loss of funds, Buffett's approach is to look for a larger margin of safety. The best margin of safety is the limit that can still maintain a non-loss boundary when the worst case occurs, which is also one of the reasons why Buffett can overcome bear markets.

Buffett stated that he does not predict the market, but in the process of research and analysis, he will identify opportunities that meet his investment requirements. If such opportunities are rare, it already indicates that the market is telling him that the valuation is already too high, and he can allocate funds to other areas.

Editor/Emily