Renowned investor Warren Buffett has been attracting market attention with his significant sell-off of stocks in exchange for cash reserves, while billionaire Elon Musk suggests that this move is a preparation for the election results.
On Monday (October 7th), Berkshire Hathaway, the company under Buffett’s helm, disclosed in a filing that it further reduced its holdings in Bank of America. As of now, Buffett’s company still holds a 10.1% stake in Bank of America.
As of June 30, Berkshire Hathaway’s total cash, cash equivalents, and short-term investments in U.S. Treasury securities amounted to $276.9 billion, with a significant portion ($234.6 billion) in Treasury securities. Treasury securities, being highly liquid assets due to the full trust and credit support from the U.S. government, are often seen as a safe haven.
Musk speculates that Buffett’s actions may indicate an upcoming market adjustment.
“He clearly expects some form of adjustment, otherwise there would be no better investment than Treasury securities,” Musk participated in a discussion about Buffett’s growing cash reserves in an August post.
On September 18, Musk mentioned Buffett again during a discussion where hedge fund billionaire and Trump supporter John Paulson stated that he would withdraw funds from the market if Vice President Harris wins the election.
Musk retweeted this report, writing, “Buffett has prepared for this outcome.”
Since 2020, Buffett has held a large amount of stocks, making him an insider in these companies. Analysts suggest that further divestment by him could exacerbate pressure on these stocks.
According to Reuters, Macrae Sykes, an investment manager at Gabelli Funds, said, “There will be worries (in the market) when one of the most important U.S. investors sells stocks.” Gabelli Funds has invested in Bank of America’s stocks through funds.
Some investors interpret Buffett’s actions as a sign of skepticism about the U.S. economic outlook amid inflation and rising interest rates.
Others see his move as a decline in confidence in the stock market, as Buffett once described the market as showing “casino-like behavior.”
At the May annual meeting of his investment conglomerate, Buffett mentioned that selling stocks makes sense as the federal capital gains tax rate may rise depending on the election outcome.
However, not everyone shares these views. Fund manager Chris Bloomstran, in an interview with Business Insider in July, said the situation is more nuanced.
He pointed out that Berkshire Hathaway’s large insurance business requires significant cash reserves to cover potential expenses. Additionally, given Berkshire Hathaway’s size, suitable investment choices are limited.
Bloomstran noted that Buffett can be patient as Treasury securities provide a respectable yield.
Buffett explained his caution at the company’s annual meeting. “We swing at the easy pitches,” he said.
But at the same time, Buffett also expressed concerns about the increasing complexity of the future. “As the world becomes more complex and intertwined, more problems may arise,” he added.
A survey of Bloomberg Terminal users in September showed that a Trump victory would benefit the stock market, while a Harris victory would be more favorable for Treasury securities.
If Trump wins, half of the respondents (340 people) indicated plans to increase exposure to the stock market, while only 28% said they would do so in the event of Harris becoming president. If Harris wins, over a third of respondents said they would reduce stock holdings.
Meanwhile, nearly half of the respondents stated that if Trump wins, they would reduce holdings in Treasury securities. Around 23% of respondents said they would do so if Harris wins.
Sam Stovall, Chief Investment Strategist at CFRA Research, stated that data shows the average annual return of the S&P 500 index since 1945 has risen by 11% during Democratic administrations and 7% during Republican administrations. Among the past six presidents, only during the term of George W. Bush did the S&P 500 index decline, and he left office during the Great Recession.