Market bulls will be nervous. The world's most famous investor is a big net seller of shares during the COVID-19 pandemic.
Warren Buffett's Berkshire Hathaway Inc. didn't buy shares during the bear market plunge even though Buffett was waiting for years for stocks to return to more attractive levels, according to Bloomberg.
Berkshire's cash holdings swelled to a massive US$137 billion by end of March – a record high for the company. What's more, the cash pile is even higher today as the company said during its annual meeting today that it sold another US$6 billion worth of shares in April.
Dead bulls don't bounce either
The news will worry ASX investors who bought "bargain" shares during the coronavirus market meltdown. The S&P/ASX 200 Index (Index:^AXJO) bounced more than 15% since it hit a bottom on 23 March this year.
But if Buffett's actions (or lack of) are anything to go by, the rally may prove to be little more than a dead cat bounce.
What's also notable is that Buffett has been unusually quiet during this market mayhem. This is the total opposite of what happened during the GFC when the famed investor had been more vocal about being greedy when others are fearful.
Berkshire also made a number of large share purchases, saved a few companies and made a big profit in the process.
Berkshire share buyback
It seems Buffett's distain for equities extends to Berkshire's shares too. The company slowed its share buyback even as its stock underperformed the market.
The Berkshire share price slumped by around 19% since the start of calendar 2020 when the S&P 500 Index declined by 13%. Even our top 200 benchmark held up better with its 17% drop.
Second wave attack
This bearish news dovetails with warnings from US doctors of an inevitable second wave of the pandemic, reports CNN.
While the growth in the number of infections and death are declining, there is a very real possibility that this is also a "dead cat bounce" in the medical context.
Americans haven't taken the lockdown as seriously as many other countries and are trying to return to normal life too quickly, warned infectious diseases experts.
What ASX investors should do
This is a troubling development for ASX investors as our market takes its cue from Wall Street. It is something we will need to keep a close eye on, although the lack of buying interest from Berkshire isn't necessarily a prediction of doom on its own.
There could be a range of reasons why Berkshire isn't rushing to buy shares. The company has a ginormous pool of capital that can't be deployed as quickly as smaller and more nimble investors. The speed of the recovery, which caught most by surprise, may be one reason for the inaction.
Buyers lining up
Also, it's mountain of cash reinforces my cautiously optimistic view that we have seen the bottom of the market back in March.
This is because I believe there is a lot of money sitting on the sidelines. A good chunk of this is from fund managers who are convinced of a second market drop and who stand ready to buy the next dip – assuming that the positive COVID-19 trend remains intact.
Let's not forget anyone holding a lot of cash at the moment is slowly but surely burning a hole in their pocket due to record low interest rates.
If Buffett is one of those waiting in the wings, he will have a lot of ammunition to deploy.
