Warren Buffett is known for making the right investing decisions at the right moment. This has helped Berkshire Hathaway beat the market for nearly 60 years. The billionaire doesn’t follow the crowd and has made some standout moves recently.
This has prompted many to ask whether he knows something Wall Street doesn’t. Throughout last year, Buffett reduced his position in his top holding, Apple, by 67%. In the fourth quarter, he closed out his positions in two funds that track the S&P 500.
This happened while the overall market soared, with major indexes posting gains. Buffett likely anticipated that high valuations would catch up with the market sooner rather than later. This prompted him to lock in gains from Apple and cut his exposure to the S&P 500.
The S&P 500’s Shiller CAPE ratio surged past 36 last year, something it has only done twice since the late 1950s. While Wall Street focused on the market’s momentum, Buffett was likely considering valuation levels.
Buffett’s cautious investment approach
He knew that a major pullback was ahead and prepared for it. Buffett’s moves proved wise as indexes required only a few uncertainties to push them into negative territory earlier this year. Concerns arose from President Donald Trump’s plan to tax imports, potential impacts on the economy and corporate earnings, and mixed economic data.
Meanwhile, Apple shares plummeted due to fears that import tariffs would hurt growth. Buffett doesn’t have a crystal ball and couldn’t predict these specific troubles. But he likely knew that any headwind would challenge the market given the high valuations.
Although valuations have come down somewhat, they still aren’t at levels prompting Buffett to make significant purchases in Q1. Instead, his biggest moves included adding to his current positions in Constellation Brands. To invest like Buffett, avoid buying a stock at any price or rushing into the market because indexes are rising.
Consider each stock individually, focus on the earnings strength and competitive advantages of the particular company. Once you buy at a reasonable price, hold on for the long term. These strategies should help you maximize your potential for a stock market victory over time.
