I vividly remember when Warren Buffett announced he was buying shares of Bank of America (NYSE: BAC ). It was August 25, 2011. He said he got the idea while he was in the bathtub…
This was nearly two and half years after the Great Financial Crisis (GFC) bottomed on March 9, 2009. Most investors were still convinced that banks were on the verge of bankruptcy. That’s why Buffett was able to buy a big chunk of the biggest consumer bank in the U.S. for $7.60 a share.
I launched an investment advisory service in February of 2012, just a few months after Buffett’s move into BofA. The first stock I told my subscribers to buy was Bank of America, around $9…
Oh, the hate mail I got!
My subscribers thought I was nuts. A number of them canceled their subscription. They didn’t care at all that Buffett had already given BofA the green light. After all, the prevailing sentiment for 4 years was that banks were trash, and investors can be very slow to change their minds. Even in 2012, they couldn’t see that economic conditions had changed any more than they could see the banks were back on solid footing.
But that’s how it is at turning points in the market. I guess we could call it a form of “recency bias,” where people just assume the status quo and follow the trend – as it has been so shall it be. Most times, the trend really is your friend.
Trend Change
Isaac Newton’s law of inertia says that an object in motion will remain in motion at constant speed and in a straight line unless acted on by an unbalanced force.
This is true for stock market trends too. Stock market trends continue until they are acted upon by some outside force. Which is to say, the trend is your friend — till it isn’t…
Right now there are two trends that appear to be broken.
For nearly two years after the October 2022 launch of ChatGPT, AI stocks trended higher. Concern that companies won’t be able to monetize their AI spending has effectively broken that trend.
And for at least the last year, the economic trend has been higher as the soft landing scenario supplanted the recession scenario that dominated 2022 and into 2023.
If we ignore the pandemic recession, the last time the U.S. economy had its trend of economic expansion broken was 2008-2009. Warren Buffett’s Bank of America investment in 2011 coincided pretty nicely with an economic expansion that’s lasted over a decade.
Now Buffett is selling Bank of America, just as the unemployment rate and the odds of a recession rise. Hmmm…
And it’s not just Bank of America, Buffett has been selling his Apple (NYSE: AAPL) stock too.
It could be a coincidence.
It could also be that Buffett sees a change in the economic trend coming and he’s taking action before the majority of investors figure it out.
Buffett’s Berkshire Hathaway (NYSE: BRK) has been furiously selling assets and raising cash:
Berkshire currently has more cash than it has ever had. Investors reaction to Buffett stockpiling record amounts of cash has so far been “meh.”
Great Minds Think Alike
CNBC reports that Buffett started selling Bank of America stock on July 17.
On that same day, Hammer told Outsider Club readers:
Brit and I have been writing about market crashes for the past few weeks. We’ve given evidence in charts, anecdotes, and statistics.
We’ve proven that the market has never been more overvalued, according to a host of various value metrics…
I have been selling my large-cap index funds/ETFs and putting that money in money markets and gold and silver ETFs, as well as small-cap stocks like Avino Gold and Silver (ASM) which I told you about a few months ago.
Looks like we’re in pretty good company.
Cheers,
Briton Ryle
Chief Investment Strategist
Outsider Club
X/Twitter: https://twitter.com/BritonRyle
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