Warren Buffett made some surprising moves recently. The billionaire investor reduced his position in Apple by 67% last year. He also closed out his positions in two funds that track the S&P 500.
This happened as the overall market soared. Buffett likely knew that high valuations would catch up with the market. This prompted him to lock in some gains from his long-term Apple holding.
He also cut his exposure to the S&P 500. The S&P 500 Shiller CAPE ratio surged past 36 last year. It only did this two other times since the late 1950s.
The Shiller CAPE ratio measures the price-to-earnings ratio over 10 years. This smooths out bumps caused by various market conditions. Buffett’s moves turned out to be wise.
Indexes only needed a couple of uncertainties to push them into negative territory earlier this year. President Donald Trump’s plan to tax imports stirred up concern.
Buffett reduces Apple stake significantly
It raised questions about the impact on the economy and corporate earnings. Mixed economic data added to that. Apple shares also plummeted amid fears that import tariffs would hurt growth.
Buffett doesn’t have a crystal ball. He didn’t know that these particular troubles would arise. But he may have known that any headwind would prove challenging for the market due to the high valuations.
Valuations have come down somewhat since then. However, they still aren’t at levels that have prompted Buffett to make significant purchases in Q1. His most significant moves included expanding his current positions at Constellation Brands.
The main message is to avoid buying a stock at any price. Don’t rush into the market just 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. Each of these moves should help you maximize your potential for a stock market victory over time.
