For a long time in the past, despite the "bullish" trend of US stocks, the "Oracle of Omaha" Buffett has been selling stocks.

On this, David Einhorn, Wall Street hedge fund giant and founder of Greenlight Capital, stated that investors are driving what seems to be the most expensive stock market in decades, "Think about Warren Buffett cashing out of the bull market."

In his latest quarterly report, he pointed out that since the company was founded in 1996, the current stocks are "the most overvalued". Einhorn stated that now may not be a good time to maintain a high stock exposure, and he used Buffett's stock sales as an example to prove this point.

"Although Buffett often points out that it is impossible to time the market, we have to admit that he is one of the best market forecasters we have ever seen." he wrote.

It should be noted that Buffett has been reducing his stock positions and choosing to hold cash off the market. As of mid-August, Buffett's cash reserves reached a record $189 billion, and he has also been consistently profitable in selling stocks. According to statistics, in the past seven quarters, Buffett's quarterly stock sales have exceeded purchases.

Furthermore, the "Oracle of Omaha" conducted the largest stock sale in history in the last quarter, cutting his holdings of Apple stocks by about half, worth around $73 billion. In the first half of 2024, Buffett's total stock sales amounted to $97 billion, while new stock purchases were only $4.3 billion.

At the same time, he has been heavily selling Bank of America stocks for several months, and has reduced Berkshire's stake in Bank of America to below 10%, accumulating over $10 billion in profits.

Buffett has stated that one of the reasons for selling shares of companies such as Apple and Bank of America is his belief that the current tax law will expire at the end of next year, causing the corporate tax rate to rise.

However, some analysts believe that his decision also indicates his view that the trading prices of these stocks are close to or higher than their intrinsic value. Because if he believed these stocks were undervalued, he should be willing to pay higher taxes in the future for owning an undervalued asset today.

Although Einhorn did not interpret Buffett's actions as a prediction of an upcoming collapse, he stated that the “Oracle of Omaha” has a talent for reducing risk exposure at the right time. For example, Buffett closed his fund before the market valuation became too frothy in the 1960s and sold his holdings before the stock market crash in 1987.

“Therefore, it is worth noting that Mr. Buffett recently sold a large amount of stock investments and built up a significant cash reserve,” he wrote.

Einhorn stated that this does not mean that there is necessarily a bubble in the market, but corporate earnings are indeed at cyclical highs, and the rising PE ratios are worrisome.

Lastly, he emphasized that the problem is not just with the 'high valuations' of well-known technology stocks. In the letter, he mentioned that even mature industrial stocks with cyclical and growth opportunities have PE ratios ranging from 30 to 50 times.

Editor/rice