Warren Buffett’s Warning.
Last week I said that I had seen the headlines that Buffett, the ‘Oracle of Omaha’, was warning to get out of the market but hadn’t had time to check them out. Now I have, and they are very interesting, so I have decided to put off the last instalment of income strategies until next week and do Buffett instead.
The Buffet Indicator
He has a ‘Buffett indicator”, which is the ratio of the market value of all US companies to the U.S. GDP. He warned way back in 2001 that “If the ratio approaches 200% — as it did in 1999 and a part of 2000 — you are playing with fire.” Well, guess what: it is now 200%.
No Buffett Announcements
Buffett hasn’t made any announcement – he’s no Harry Dent – but his actions seem to confirm that he is heeding his own indicator. During 2024, his company has been reducing its stock holdings, selling $36.1 billion worth of stocks but buying only $1.5 billion. This means that his cash & short term treasuries are a record $325.2 billion. (I am using ‘Buffett’ when actually it is his company, Berkshire Hathaway but that’s too long).
Buffett Sells Apple Shares
Berkshire Hathaway’s (Buffett’s company) main stock holding was AAPL. Early this year he started unloading his AAPL stock, and has gone from owning 5.8% to 2% of the total AAPL shares. Let’s see how that has worked out for him:
Not too well, by the looks of it, selling most of the shares when the share price was a lot less than it is now.
Buffett Sells Bank of America
The second largest stock holding was Bank of America (BAC), where they owned 12.8% of the total shares. They made sales of $38.89 million BAC shares in the second quarter and $9.44 in the third quarter. How has that gone for them?
Hmmmm . . .well, it was off the lows when they sold, but trending higher, and continued to trend higher after they sold.
What is Buffett Buying?
Strangely enough, pizza. I guess that ties in with his love for coke and McDonalds (he eats there regularly). It was, for him, a relatively modest buy of $549 million of Domino’s Pizza (DPZ)
Well, that at least is working out for him, but not spectacularly.
Anticipating Downturns
I tend to agree with Peter Lynch, a ‘legendary’ investor and mutual fund manager, best known for managing the Fidelity Magellan Fund from 1977 to 1990, achieving an average annual return of 29.2% making him one of the most successful investors of all time.
Far more money has been lost by investors trying to anticipate corrections than lost in the corrections themselves.
Nvidia & ClickBait
Last week, the big news was Nvidia’s result. To read some of the headline you would have thought they were really bad:
NIVIDIA MISSES highest analyst estimates
NVIDIA just scraped past estimates
How the worlds’ most valuable company disappointed Wall St
The first one is particularly interesting – since when were earnings measured against the HIGHEST analyst estimate? Others were more circumspect.
Nvidia share price slips despite 94% revenue growth
Nvidia earnings: AI chip leader shows no signs of stopping mammoth growth
Nvidia nearly doubles revenue on strong AI demand
Nvidia crushes expectations, more than doubling its profit amid a 94% surge in revenue as AI demand booms
Nvidia Earnings Were a Blowout. Just Ignore the Stock Move for Now.
The Actual NVIDIA Earnings
Check out these metrics:
Revenue: $35.1 billion, a 94% increase from the same quarter last year.
Net Income: $19.31 billion, more than doubling from the previous year.
Data Center Revenue: $30.8 billion, up 112% year-over-year.
Earnings Per Share (EPS): $0.78, a 111% increase from the prior year.
Yet the share price fell. Go figure.
To the markets
Overall, a good week, with the major indices all establishing support.
SPY Charts
Last week I was probably a little smug about being right that SPY would bounce off the 600 level. I should know better; the market seems to know when you are smug and give you a spanking, but it has been lenient on me this time and again done exactly what I said it was likely to do.
Notice I said ‘likely’ – I am no oracle and can’t predict the future. No-one can. I just watch to see what has happened before and assess whether I think it will happen again – in other words, just putting the odds in our favor.
Last week SPY had bounced off $600 and had dropped to $585. This week it bounced off $585 and is headed back up towards $600 – perfectly normal behavior. This seems to establish support at $585 (which is the level of the previous high in October).
So, the next thing to watch is: will it bounce off $600 and start trading in a channel? Or will it power through and make new highs?
I don’t know but it will be interesting to watch.
Actually, I just wanted to give you a close up of the last few weeks, and to point out the 2 dragonfly dojis this week.
On the 20th the market dropped on open until it had reached the support level of $585 and then proceeded to climb until it closed almost exactly on open, forming the dragonfly doji. On the 21st, the market again dropped on open, and then proceeded to climb for the rest of the day closing just above the open, another doji.
How I read this: there are a lot of twitchy traders who are ‘protecting their profits’ by selling at what they think is a high. Then the cooler-headed traders prevail and bid it up again.
Here’s the chart, you can decide for yourselves what you think is happening.
On the longer term chart we see that the uptrend is still intact.
SPYG Charts
Quite a satisfying chart, showing SPYG rejecting $85, showing support at that level. Wednesday also saw a dragonfly doji (see above for discussion). Let’s hope that this support holds, and it goes on to make new highs.
The weekly chart shows the uptrend is still intact.
QQQ Charts
QQQ dropped a lot Friday a week ago, but the low of that day ($496) seems to be holding as a support.
The longer term chart shows that it is still crawling along the bottom of the trading channel.
VIX Chart (Volatility)
The VIX is still in low volatility territory.
ITMeter
The week ahead
It should be interesting. The futures are up a bit, and that is being attributed to the appointment of a prominent investor, Scott Bessent, as Treasure Secretary.
He will replace Janet Yellen whom Biden appointed in 2021. Yellen had previously worked in many roles in academia and the public service, but not the private sector. She has been an active advocate for ‘climate change’ action, most recently (2024) in recommending $3 trillion in new investments in that area. The markets are probably reacting positively to the change in focus from environmental activism to economic concerns.
The Futures
The futures are up, but it is still 11 hours to market open.
Fingers crossed for a good week!
Heather
General Knowledge Quiz
Anyone know the meaning of the top image?
Answers in the comments below.
21 Responses
Love your Blog
Happy Thanksgiving to everyone out there.
Remember to give thanks this Thursday for all the blessing we have as investors and living in free societies.
God Bless every one of you,
Jim.
Hey Jum – lovely comment.
Yes, we forget that we have won the birth lottery by just being born / brought up in a free society and in good times. I am feeling hope for the future that I haven’t felt for a few years – and I am most definitely thankful for my wonderful life every day!
h
I have been using the Slow Stochastic Indicator with the red arrows as a signal to sell. I use the PSAR green arrow as a signal to buy. I use Hekin Ashi Candles on a daily chart.
Regards,
BajaPete
Hi – I got your chart – thank you – have you backtested the results on it? Do you use it on particular indexes / stocks / commodities?
It looks really interesting, although a bit complicated!
But great that it is working for you.
H
Dear Heather
I came across your blog and subsequently purchased the book, read it at one go.
I found it a very interesting strategy and would like to definitely consider taking a position as soon as funds are available. I also found the results very exciting.
There are 3 limitations I see:
1. Not all strikes are available at 50% of the current market price
2. Longer duration contracts are not available
3. Time value is higher and only one strike/expiry – it fulfilled our criteria for ITM buy.
Do you have any suggestions for me on how to go about these limitations?
Hi Tejas – in trading nothing works out exactly, we just have to get as close as we can.Re your questions:
1. Not all strikes are available – yes, that it correct. For SPY, you get the most strikes on the monthly options, the weekly options are more limited in their strikes. So for example, the March 21, 2025 option is a monthly (expires on the third Friday of their expiration month) and the March 31, 2025 is the weekly. For SPYG there are no weekly options, only monthly and not all months so yes, you are much more limited.
The backtesting was done on the basis:
2. The calculated option strike is calculated as the Strike % parameter of the SPY open on the buy day.
3. The actual option strike is calculated by rounding up to the nearest:
a. Integer if the strike is < 30. b. b. Even number if strike 30 – 70. c. Number ending in 5 or 0 if >= 70
4. So – the lower the strike you choose the less risk you are taking but the less profit you will make.
5. Looking at the March options the lowest strike is 40 (46% of current), the next 45 (52%). The bid / ask for the 45 strike is 40.60 / 43.30 mid pt $41.95 , effective price $86.95, Time value 0.4% which seems like a good choice.
6. Yes, longer term options are not available on SPYG, but the March ones are 4 months away, the June ones are 7 months away so either would work – just remember to roll out.
7. I’m looking at today’s chains and the June 55 strike (63%) has a time value of 1.5% which seems good value.
As always everyone chooses the ones most suitable for them – ITM simply gives the parameters as guidelines with the backtesting to back them up.
Hope this helps – please get back to me if not.
h
11/25/2024 NVDA down today so I have sold Mar & May 110 Puts
Hi – just looked at the charts, you should be in profit now – just remember that the underlying trend is up and keep on top of this trade.
h
This from a Google image search:
A sibyl in Greek means “prophetess”; a woman who is believed to foresee the future. Sibyls are a theme of myth and legend carried from the ancient world, and their stories varied. The Delphic sibyl made her prophecies of future events at the natural rock named the “Sibyl rock”, found near the temple of Apollo.
Sistine Chapel
Yes, well don! Who said traders were uneducated nerds!
Yes, she is one of the 5 sybils on the chapel ceiling. I was actually thinking of Cassandra, I thought she was one of the sybils but it turns out she wasn’t.
So not as educated as I should be!
h
As per usual excellent analysis and commentary!
Happy Thanksgiving!!
Thank you Andrew – how kind! And happy Thanksgiving to you too! We dont celebrate it here in Australia, but I think it is a lovely idea.
h
Happy Thanksgiving, Heather. I use an Income Strategy that I call the KaChing Portfolio. I Buy a 90-120 Day OTM Put and Sell a Shorter Term (1-2 weeks) OTM Put on a stock with a lot of movement, e.g. TSLA, DJT, NVDA. So far, it has been profitable (knock on wood)…
Hi Phillip,
Could you elaborate a little more on this. How far out of the money are you buying the puts and are you selling puts at the same strike or closer to the money? Do you keep selling put on the one you own after the one you sold expires or close out the trade?
Thanks.
Hi Phillip – so its a calendar spread? Repeated?What percentage are you getting on each trade (approx)?
h
Dear Heather,
Thank you for your weekly blogs and I enjoy reading them very much. Warren Buffett and Peter Lynch are some of the greatest investors of all times. Speaking of the Federal Reserve, the longest serving chairpersons were Bill Martin and Alan Greenspan. Janet Yellen was the only female chairperson of the Federal Reserve from 2014 to 2018.
Sincerely,
George Halongton
Hi George – thank you. Greenspan was certainly round a long time – reappointed by Bush, Clinton then Bush.
I just tend to wish they would stop going around giving speeches, makes the market jumpy!
h
We’re in a bull, but the bear is poking his head up.
Hi Blake
the bear is always a possibility – but I do hope your aren’t right. Bull markets are so much more comfortable!
h
Many NVDA metrics have doubled (or slightly better) in the last year; the price has tripled.
Hi Al – yes, its a ]n amazing performance. I should compare it with NFLX a few years ago – wonder which one was better?
h