The large conglomerate Berkshire Hathaway (BRK.A) (BRK.B 4.84%), run by investing legend Warren Buffett, reported its third-quarter earnings results over the weekend. The report is a big deal for shareholders and all market watchers who are curious to see what moves Buffett and his team of investing experts made during the quarter because they indicate their overall view of the market.

Another reason investors watch Buffett is because he runs a $300 billion-plus equities portfolio that invests in some of the most popular stocks in the market. While the 13F report detailing Berkshire’s exact stock holdings at the end of the third quarter won’t be available until around Nov. 14, Berkshire’s earnings report offered some clues about Buffett and Berkshire’s investing decisions in the third quarter.

Based on these clues, we can determine that Berkshire sold hundreds of millions of shares of his two favorite stocks — Apple (AAPL 0.43%) and Bank of America (BAC 8.55%) — and piled into an ultra-safe asset yielding close to 5%.

Berkshire sold 334 million shares of Apple and Bank of America

How do people know that Berkshire sold all of these shares if we don’t have its 13F filing? Berkshire’s earnings reports detail the fair value of the company’s five largest holdings in its stock portfolio, given their material impact on the equities portfolio and the company. You then can find the historical stock price on the last day of the quarter and calculate the share amount.

Here is where things stood at the end of the second quarter on June 30. (I’m using stock prices from June 28 because June 30 was a Sunday.) The numbers are in thousands:

Source: Berkshire’s second-quarter earnings report/Wisesheets. Chart by author.

Here are the shares Berkshire owned in each stock on Sept. 30 using the same calculation:

Source: Berkshire’s third-quarter earnings report/Wisesheets. Chart by author.

Based on these figures, Berkshire decreased its stake in Apple by 25% and Bank of America by 23%. We won’t know what prices Berkshire sold shares at until the 13F comes out.

I think it’s difficult, if not impossible, to think anything other than Buffett and Berkshire viewed these stocks — and likely the entire market — as overvalued. Apple now trades for more than 36 times earnings, which isn’t the highest it’s traded for over the last five years but certainly toward the higher end. Bank of America trades for roughly 1.6 times its tangible book value (net worth), which is actually right around its five-year average.

These moves follow a pattern of Buffett turning away from stocks. Through the first nine months of the year, Berkshire purchased roughly $5.8 billion of stocks and sold more than $133 billion.

The market has only been more expensive than it is now two other times in history, based on a metric called the Shiller price-to-earnings (P/E) ratio, which looks at the value of the S&P 500 index to the average corporate earnings of the stocks in the index over the last decade. This occurred right before the DotCom bubble and during the pandemic in 2021-22. The market experienced a significant correction on both occasions.

Piling into cash and short-term Treasury bills

Berkshire didn’t purchase much other than short-term U.S. Treasury bills, another indication that Buffett and Berkshire view the market as overvalued. Berkshire didn’t repurchase any of its own stock in the quarter, the first time this has happened since 2018, and only about $1.5 billion in equities.

Instead, the value of Berkshire’s investments in short-term Treasury bills expanded by more than $53 billion in the quarter. Berkshire now has over $320 billion of short-term Treasury bills and cash and cash equivalents. While we don’t know the duration of the Treasury bills Berkshire purchased in the quarter — and therefore the yield on those bills — we do know that Berkshire includes Treasury bills with maturities of three months or less under cash and cash equivalents. So I think a good benchmark to look at is the six-month treasury bill.

Six-Month Treasury Rate data by YCharts.

The yield on the six-month treasury fell significantly in the third quarter but averaged close to 5%. Berkshire might have purchased treasury bills with several different maturities, and we don’t know when he made those purchases, so this is just an estimate.

While I don’t necessarily think Buffett is predicting a meltdown tomorrow, he could be signaling a broader shift in markets, according to billionaire hedge fund manager David Einhorn. In a recent letter to shareholders, Einhorn said that Buffett has a knack for timing the market and might be thinking that it’s time to move to the sidelines to let things cool off.

This doesn’t mean that retail investors need to sell their entire portfolios or even sell Apple or Bank of America. Remember, Buffett and Berkshire invest hundreds of billions and have countless shareholders depending on them. Their mindset will be quite different than that of a retail investor. Apple and Bank of America also consume a majority of Berkshire’s portfolio, so they may feel overexposed.

But when you see things like this happening, it’s time to ask some difficult questions. Am I investing in a stock trading at a high valuation and relying on unreasonable growth expectations? Will the stocks in my portfolio be OK if there’s a market correction? Or a recession?

You may answer these questions and determine that no changes need to be made in your portfolio, but it’s an exercise that will give you more confidence and make you a better investor.