Warren Buffett's Buying Spree Winding Down: Good News for Investors?

Warren Buffett backed up the truck and began loading up on stocks earlier this year. He and his investment team led Berkshire Hathaway (BRK.A -0.87%) (BRK.B -0.78%) to buy oil stocks, financial stocks, entertainment stocks, and more.

Berkshire spent more on stocks in the first quarter of 2022 than it has in years. But now Buffett’s buying spree appears to be winding down. And that could be good news for investors.

Losing steam

To be sure, Buffett did buy some stocks in the second quarter. Berkshire’s 13F filing with the Securities and Exchange Commission revealed that the giant conglomerate bought shares of nine companies.

However, Buffett and his investment managers didn’t initiate any new positions in Q2. Instead, the only buying they did was to add shares of companies already in Berkshire’s portfolio. The three largest purchases increased Berkshire’s stakes in Occidental Petroleum (OXY -0.85%), Ally Financial (ALLY -2.58%), and Paramount Global (PARA -3.31%).

Importantly, Berkshire spent a sharply lower amount investing in stocks in the latest quarter. In Q1, the company invested a whopping $51 billion. In Q2, the amount invested plunged to only $6.2 billion.

But Buffett and company also sold some stocks, including complete exits from positions in Verizon and Royalty Pharma. As a result, Berkshire’s net purchases in Q2 totaled around $3.8 billion — much lower than the net purchases of $41.5 billion in the previous quarter.

Inverse correlation

Why is Buffett’s buying spree winding down good news for investors? There’s an inverse correlation to some extent between Buffett’s enthusiasm about buying stocks and how the stock market is performing. If Buffett isn’t buying as much, your stocks are probably delivering solid gains.

This inverse correlation definitely shows up frequently with Buffett’s purchases of individual stocks. For example, Buffett stated publicly that he would have bought more shares of Apple (AAPL 0.88%) in Q1 if the stock had not started to rebound. Shares of the tech giant fell in Q2, though — and Buffett gobbled up even more of Berkshire’s largest holding.

Ally Financial and Paramount Global — two of Berkshire’s three biggest purchases in Q2 — also saw their stocks sink last quarter. This no doubt made the stocks much more appealing to Buffett.

We can see the inverse correlation in another way by looking at Berkshire Hathaway’s cash and short-term investments compared to the S&P 500‘s performance. The company’s cash stockpile grew when Buffett wasn’t buying as many stocks and declined when he was investing heavily.

BRK.B Cash and Short Term Investments (Quarterly) data by YCharts

Note that Berkshire’s cash stockpile decreased during the Great Recession of late 2007 through mid-2009. It also decreased earlier this year as the S&P 500 fell. However, during the long bull market that followed the Great Recession, Berkshire’s cash position increased significantly. 

Quality over quantity

Buffett isn’t likely to complain very much that his buying spree is tapering off. When he doesn’t find valuations as attractive, it usually means that many of the stocks in Berkshire’s portfolio are performing well.

Despite the lower investing activity, Buffett will still probably continue scooping up some stocks in the coming quarters. Even if the stock market begins a strong new bull market, the legendary investor could see some stocks that he likes. 

But Buffett always focuses on quality over quantity. The stocks that Buffett buys for Berkshire won’t always be ones that small investors will especially like. But when he loads up on a given stock, whether it’s Occidental Petroleum or Apple, you can bet that it’s a high-quality pick. 

Ally is an advertising partner of The Ascent, a Motley Fool company. Keith Speights has positions in Apple and Berkshire Hathaway (B shares). The Motley Fool has positions in and recommends Apple and Berkshire Hathaway (B shares). The Motley Fool recommends Verizon Communications and recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), long March 2023 $120 calls on Apple, short January 2023 $200 puts on Berkshire Hathaway (B shares), short January 2023 $265 calls on Berkshire Hathaway (B shares), and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

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