“rule number one: never lose money. rule number two: never forget rule number one.”

—warren buffett

text/ ba jiuling

on august 30, 2024, in his old house in omaha, buffett celebrated his 94th birthday. although ordinary birthday gifts could not excite him, this time, he received the gift he wanted most in advance.

on august 27, the stock price of berkshire hathaway, owned by buffett, rose briefly, and its market value reached $1 trillion.it became the seventh u.s. listed company with a total market value of over one trillion u.s. dollars.

source: global listed company market value ranking network

some people say that this is a victory for buffett-style "value investing."

however, when the stock god blew out the candle,berkshirehowever, they are continuing their "great retreat" plan, and they are determined to sell off the companies they once favored, such asbank of america、apple、chevron, financial holding company cof, and liquidated the us cloud computing company snow......

even though the nasdaq is performing strongly and is still up 18% this year, the stock god is more worried about the u.s. stock market than anyone else.

what on earth made the stock god unable to smooth out the wrinkles between his brows even when he was blowing out his birthday candles?

buffett frowns

the first thing buffett abandoned was his "old lover" bank of america. it was called an old lover because it was actually a bargain hunting.

in 2011, bank of america was facing tens of billions of dollars in losses due to bad mortgages and legal lawsuits, and its capital was extremely tight. at that time, buffett took out $5 billion to solve bank of america's urgent needs.

in return, buffett received preferred shares with a 6% return rate and the right of first refusal to buy the shares at a price of $7.14 in the next 10 years. with so many purchases, buffett became the largest shareholder of bank of america.

bank of america is berkshire's second largest holding and one of the most profitable stocks in buffett's investment career, with dividends alone exceeding $2 billion. the stock god has repeatedly praised bank of america's management in public and said he "doesn't want to sell it."

even in march 2023, the us banking crisis began to spread.silicon valley bankandfirst republic bankas banks went bankrupt one after another, buffett sold his company's shares in other banks, but he never sold bank of america shares.

the situation was stronger than the person, and the stock god ultimately went against his own wishes.

in july this year, berkshire began to reduce its holdings in bank of america. the stock god's first move was to sell off the shares for 12 consecutive trading days, cashing in a total of us$3.8 billion.

after a short break of half a month, buffett sold another 14 million shares of bank of america, cashing in $550 million.

that’s not all. according to the latest documents from us regulators, buffett also sold $982 million worth of bank of america shares in the past week.

image source: u.s. securities and exchange commission

why did buffett sell his long-held bank of america shares? what happened to long-term holding and value investing? did the stock god betray his beliefs?

buffett himself remained silent, but the media gave three reasons for the sell-off.

the first reason is that bank of america is overvalued.thanks to the blessing of buffett's halo and the efforts of management, bank of america's stock price continued to strengthen, rising 4.63% last year and 20% this year.

looking at a longer period of time, its stock price has risen from us$5 in 2012 to us$40 now. in terms of price difference alone, berkshire has made a fortune.

the financial media therefore believe that bank of america is now at a high position, and a price-to-earnings ratio of 15 times makes bank of america no longer so "cheap", so selling at a high and exchanging it for cash is also a good choice.

the second reason is the slowdown in profitability of the us banking industry.

according to the second quarter financial report of 2024, although the performance of us banks was good, with the us base interest rate unchanged, the deposit interest cost increased and the borrowing demand decreased, resulting in the bank's net interest margin falling for four consecutive quarters. net interest income also declined this quarter, which was lower than expected.

declining profits led to decisive selling, which was quite consistent with buffett's investment philosophy. after all, buffett took action right after bank of america released its financial report.

the focus is on the third reason: the uncertainty brought about by the reversal of the monetary cycle.this may be what buffett is most worried about.

at the jackson hole global central bank annual meeting a few days ago, federal reserve chairman powell publicly stated to the world: "the time for policy adjustment has come. the direction of monetary policy has been made clear."

jackson lake villas

federal reserve chairman jerome powell (left)

powell's "dovish" stance means that the federal reserve's interest rate hike cycle is about to end and the interest rate cut cycle is about to begin. the global monetary policy is about to undergo a 180-degree reversal.

to put it in an exaggerated way, the global financial market is about to usher in a new pattern of violent turbulence.

many people think this is an opportunity. after all, easing and interest rate cuts are good for the capital market.

but buffett has a different view.

he values ​​berkshire's cash more than risky holdings and investments, as he said at the annual meeting on may 4:“we’d love to spend the money, but not unless we think there’s little risk in what we’re doing.”

say goodbye to cook?

there are few situations in the world where a trillion-dollar company says goodbye to another trillion-dollar company. but this happened this year when berkshire sold apple.

many people don’t know that buffett and munger once “hated” apple.

as early as 2013, buffett's partner munger told reuters: "it is hard to imagine a company that is less favored by berkshire hathaway than apple."

but in 2016, berkshire bought apple stock for the first time, from 10 million shares and 60 million shares at the beginning, and then to 70 million shares decided by buffett himself.

subsequently, buffett continued to increase his holdings, and at its peak in 2021, he owned 900 million shares of apple. apple became berkshire's largest holding, with book profits of approximately us$120 billion.

for an old man who doesn't like technology stocks, it is unimaginable to buy technology companies as his largest holding.

buffett once gave a reason. he thought apple's products were very good and were good consumer goods."i like apple as a company."

however, in august, buffett suddenly "disliked" the company - his holdings in apple dropped from 790 million shares to 400 million shares, nearly halving.

it would have been fine if you didn't give an explanation when you sold off bank of america, but this time your holdings in apple have been cut in half. even if you are the god of stocks, you have to give investors an explanation, right?

this time, buffett gave his own reasons.he said expectations of a possible increase in u.s. tax rates led him to take profits on his apple position.

although trump, one of the presidential candidates, said that if he were elected president, he would further cut taxes, especially reducing tax rates for corporations.

harris, another presidential candidate, has a completely different philosophy. her campaign has made it clear that it will push for a 28% corporate tax rate, saying it is a "fiscally responsible approach" because a high tax rate can put money back into the pockets of working people.

should we believe in trump’s “make america great again” or harris’ counterattack and impose taxes on apple?

buffett's choices are often the most "conservative", but also the wisest:hold on to your money and wait and see, don't go to the poker table.

as long as the god of gamblers doesn't gamble, he will never lose.

buffett abandons stocks and invests in bonds

how much money does buffett have when he comes down from the poker table?

according to the company's data at the end of the second quarter, cash reserves were us$276.9 billion, compared with us$189 billion at the end of the first quarter.

the $276.9 billion is not all cash, but short-term u.s. treasury bonds with maturities ranging from 4 to 52 weeks. the total amount of treasury bonds held is $234.6 billion, a huge number.it even exceeds the $195.3 billion in u.s. treasury bonds owned by the federal reserve.

why did buffett abandon stocks and invest in bonds? in addition to the above-mentioned risk considerations, the biggest reason is buffett's deep concern about the us economy.

data doesn’t lie.

the u.s. non-farm employment data in july has weakened significantly, and the unemployment rate of 4.3% has triggered "sam's law", which means that the united states has fallen into recession from a technical perspective of unemployment rate.

data can also be deceiving.

according to the u.s. department of labor,the u.s. has massively revised down its job numbers by 818,000, which means the actual u.s. unemployment rate is much worse than what the non-farm data tells us.

even the market-recognized "no. 1 on wall street"jpmorgan chaseceo jamie dimon also said that the probability of a soft landing of the u.s. economy is 35%-40%. if we are unlucky, it will be a deeper recession or even a hard landing.

in history, buffett actually had some "magic operations" that were similar to prophetic nature. for example, in 1969, buffett sold all his stocks and even closed his investment company, completely leaving the stock market. he did not return to the market until the stock market crash in 1973.

for example, in june 2005, berkshire hathaway frantically sold stocks for cash, and the proportion of cash it held was similar to it is now, both around 25%.

we all know what happened next. the subprime mortgage crisis began to emerge in 2006 and swept across the united states in 2007, causing a huge financial disaster.

so is the stock god's move of abandoning stocks and investing in bonds also hinting to us that he believes a huge crisis is brewing in the united states right now?

speaking of which, there are really many black swans and gray rhinos in the us economy, such as the middle east crisis and the russia-ukraine conflict, real estate housing problems and the $35 trillion us debt crisis.

homeless people sleeping in alleys as housing costs soar in u.s.

coupled with the political turmoil brought about by the us election, the entire united states has become a mess, just like northwestern shanxi.

it is precisely because of the deep concern about the us economic and financial risks that buffett resolutely "abandoned stocks and invested in bonds" - unlike the goose city county magistrate who made money on his knees in "let the bullets fly", he can now really make money lying down:

since the federal reserve raised interest rates significantly, the u.s. federal funds rate has jumped to 5.25%-5.5%, and short-term treasury bond rates are also very high.

according to friday's data, the yield on 3-month u.s. treasury bonds is 5.12%; the yield on 6-month treasury bonds is 4.87%; even the slightly longer 1-year treasury bond yield still has a high yield of 4.41%.

the dividend yield of bank of america, which was just abandoned by buffett, is only about 2.3%.

let’s change the algorithm.assuming that buffett invests in u.s. short-term treasury bonds at a 5% yield, he can get an annual investment return of $10 billion by buying $200 billion in treasury bonds.

therefore, buffett's move of "abandoning stocks and investing in bonds" may not bring much profit to berkshire, but it does give buffett's next successor enough confidence in the turbulent period in the future.

the beginning of a rate cut cycle is not necessarily a carnival

as a recognized stock god, buffett actually thinks differently from us. for example, when the federal reserve cut interest rates this time, we saw a carnival in the capital market, but what buffett saw was uncertainty and risk.

why would an epic good news be interpreted as bad news by the stock god?

in theory, when the federal reserve announces a rate cut, the u.s. monetary policy will move from tightening to easing, and funds will flow from the u.s. to countries around the world, which will not only boost the stock markets of various countries, but also cause the economies of various countries to recover and rebound.

this is the basic law that western economics tells us.

but if we look at the 14 complete federal reserve cycles in modern financial history, we will find that every interest rate cut by the federal reserve corresponds to a recession in the us economy.

some of these situations were relatively dangerous, such as the internet bubble in 2002 and the subprime mortgage crisis in 2007. in this case, the fed’s interest rate cut was more like a “fire-fighting” measure through a forced interest rate cut, and was not good news.

however, if there is still a high probability of a "soft landing" in the us economy while the interest rate is cut, in this case, the interest rate cut may not be so bad.

this principle is understood by those who are familiar with the history of economics. the stock god also knows it.

buffett in an interview in omaha, nebraska

the problem is that according to buffett's investment philosophy, he does not seem to be willing to choose "gambling".the 94-year-old stock god would rather see continued growth than the returns from a single high-risk investment.

as buffett once said:“rule number one: never lose money. rule number two: never forget rule number one.”

author of this article | wang zhenchao | responsibilityeditor | xu tao

editor-in-chief | he mengfei | image source |VCG