Oracle of Omaha cuts his stakes in Goldman Sachs and JP Morgan.

Warren Buffett, the Oracle of Omaha, has reduced his holdings in Goldman Sachs and JP Morgan Chase & Co. In the most recent regulatory filings, Berkshire Hathaway revealed that it had sold down 84% of its Goldman Sachs stock. At the same time it also reduced its stake in JP Morgan by a not insubstantial 3%.

Warren Buffett's working relationship with Goldman Sachs has an illustrious history, spanning over 50 years. During the Great Financial Crisis of 2008, Berkshire came to the rescue of the venerable investment bank by subscribing to 5 billion US$ worth of preference shares. The legendary investment provided Wall Street with a much-needed vote of confidence when it was most needed.

Putting aside that astute 2008 investment, there may be more to Berkshire’s latest stock sale than meets the eye. Does it mean that Warren Buffett may now hold a less rosy vision of the future of Wall Street banks? This question is important in view of the extensive economic damage being wrought by the Covid-19 pandemic.

The famous "Federal Reserve put” has conditioned investors to buy every stock market dip. Since Greenspan’s time, the Fed has never failed to resort to loose monetary policy to bail out investors in each financial crisis. This time around, instead of buying, the Oracle of Omaha seems to dance to a different tune by selling stocks to raise cash. Berkshire now holds a record cash stash of 137 billion US$. As investors we would do well to remember the principle of “caveat emptor” (buyer beware) and proceed with utmost caution.