When a man who has created the greatest wealth in history through investing alone (whose preferred holding period is “forever”) becomes a determined seller of two of the most widely held stocks in the world, there are questions about what it means for the market And the economy is inevitable. The same goes for Warren Buffett's Berkshire Hathaway, which has cut its holdings in Apple and Bank of America in recent months. Apple's holdings have been roughly halved so far this year, and last week's sell-offs by Bank of America since mid-July have reached nearly $8 billion, bringing Berkshire's holdings down to 10.7%. Does this mean the market is too expensive even for buy-and-hold believers, the smart money is fading, and Buffett is waiting for a collapse in asset values to deploy Berkshire Hathaway's nearly $300 billion part of the cash? The right takeaway is unlikely to be so simple or so scary. Buffett himself has said in recent years that he doesn't think the public markets offer a lot of compelling value. The fact that he hasn't made a large-scale acquisition of an entire company in a while, even as he continues to look for ways to convert cash into lasting business ownership, underscores the apparent lack of opportunities at the scale and valuations needed. But this by itself does not provide many clues about future market prospects or macroeconomic conditions. Berkshire Hathaway has been a net seller of stocks in its portfolio over the past seven quarters, with the S&P 500 up 50% during that period. Ed Borgato, a private investor and long-time Berkshire shareholder, said Apple and Bank of America's “cuts do not reflect any macro view. It is completely inconsistent with his sensitivities and decision-making history.” Why did Buffett sell? The selloff in Apple and Bank of America may be the most direct reflection of how big these positions are, with Apple accounting for about half of investment accounts at the end of last year. Borgato called it a “disconcerting fact that Apple has grown into a significant part of the portfolio and has a premium valuation despite growing at a much slower rate.” He noted that Buffett sometimes expressed regret for not selling some of his Coca-Cola shares when the company's price-to-earnings ratio hit 50 times in the late 1990s. As for Bank of America, this was a lucrative investment made in an opportunistic manner shortly after the global financial crisis, and there may have been some reasonable goals to at least reduce Berkshire's holdings below the 10% threshold, Above that threshold, holders are required to report transactions almost immediately. It's hard to ignore the fact that all of this is happening just as the 94-year-old Buffett is preparing to let the company eventually be run by someone else. At the annual shareholder meeting in May, Buffett revealed that his choice as CEO successor — current Vice Chairman Greg Abel, a utility executive who oversees non-insurance businesses — also will have the final say on investment matters. He said it represented a shift in his thinking from a time when he thought roles would be split. A logical corollary to this is that without Buffett, the childhood stock speculator and student of value investing, who initially built his empire, what would have happened to the future Berkshire Hathaway? , transferring capital into or out of public equity minority stakes may become less important. Regardless, perhaps Buffett thinks it's time to calm down some of the investments in his portfolio that have grown into huge bets before any transformation occurs. What You Can Learn from Buffett Yet even assuming it's a mistake to view these moves as a guide to market timing, the situation at Berkshire Hathaway reflects some of the issues many non-billionaire investors are facing right now: What to do with hugely appreciating mega-cap tech stocks, how much to pay for “quality” stocks, whether it makes sense to hold a lot of cash as interest rates fall, and the extent to which higher tax rates should or shouldn't dictate investment decisions now. Berkshire Hathaway's big profit-taking spree comes at a time when Berkshire Hathaway's own stock is handily outperforming the market and starting to look richly valued. Since the October 2022 bear market lows, Berkshire Hathaway has tracked the iShares MSCI Quality ETF (QUAL) almost perfectly while beating the S&P 500, reflecting how steady money has been flowing into companies with strong balance sheets and profitability Stable leading company. BRK.B QUAL,.SPX mountain 2022-10-27 Berkshire Hathaway vs. iShares MSCI USA Quality Factor ETF vs. S&P 500 Of course, insurance stocks also performed well, with Berkshire Hathaway doing better than any other single company Like an insurance company, but the quality factor is the most important. The market's prime segment — a large portion of cash-rich, highly profitable technology companies and other high-return businesses — has served investors well through a period of uneven earnings growth and rising interest rates starting in 2022. However, this market currently has the stock trading at the high end of its historical valuation range, at a more than 10% premium to the S&P 500, at a time when profit growth is arguably expanding and the Fed is cutting interest rates to achieve a soft landing. Along the way, Berkshire's price-to-book ratio climbed above 1.6, a level the company has only spent a few months above in the past 15 years. The company slowed the pace of repurchasing its own stock in the latest quarter, and Buffett is known to be picky about how much he spends on repurchasing Berkshire stock. This month, Vice Chairman Ajit Jain, who runs the insurance unit and has worked for Buffett since 1986, sold about half of his personal stake in Berkshire, valued at $139 million. While we can look at the stock's valuation, Jain's age (73), and the fact that Trump's tax cuts are set to expire at the end of next year unless Washington takes action to maintain them, it's impossible to say for sure. Tell what motivated the sale. Buffett himself cited the prospect of rising corporate tax rates in the future when discussing the sale of Apple stock earlier this year. Berkshire's nearly $300 billion in cash is both a buffer and a burden. Buffett has said he is willing to charge close to 5% interest and become the largest single buyer of Treasury securities as long as he doesn't find a ripe opportunity to acquire some rare “permanent business.” Borgato said he believes “Buffett wants to move Berkshire Hathaway out of a situation where future cash distribution decisions require (less) cash distribution decisions, not more.” That requires finding high-priced investors willing to sell at a fair price. Achieving, enduring businesses, a difficult task in a fully valued market. Of course, as the Fed adopts an easing mode, cash yields will fall. It's unclear whether that will change Berkshire's willingness to part with cash or lower its threshold for new investments. Given generations of high yields, many ordinary investors find themselves content to sit on idle cash. I disagree with the notion that “cash on the sidelines” anticipates the inflow of money market assets into the stock market. Only one-third of the $6 trillion in money market assets is held directly by retail investors. History shows that large-scale reallocations from cash to stocks only occur after deep bear markets. Research presented last week by Jared Woodard, head of BofA's research investment committee, found that money market yields would need to fall below about 3% to prompt significant outflows, with most of the cash flowing into bonds rather than stock. Perhaps it's better to think of cash holdings as a yield play, rather than a buffer that exposes investors to the risk of stock market appreciation, and ammunition to use when compelling opportunities arise – as Buffett says. Do that. Correction: This article has been updated to correct the number of Coca-Cola shares Buffett owned in the 1990s.