Pay Attention To Warren Buffett Actions, Nvidia Celebration, Trump Trade Pulling Back

To gain an edge, this is what you need to know today.

Cash Is Not Trash

Please click here for an enlarged chart of Warren Buffett’s company Berkshire Hathaway Inc Class B BRK.

Note the following:

• This article is about the big picture, not an individual stock.  The chart of BRK.B is being used to illustrate the point.
• Warren Buffett is one of the best investors.  Prudent investors should pay attention to his actions.
• The chart shows BRK.B stock has pulled back to the top of the mini support zone.
• The chart shows that BRK.B stock has experienced a decent pullback from the resistance zone.
• At a time when the stock market is near an all time high and the momo crowd is not only fully invested but is also nearly fully margined, Berkshire Hathaway’s cash pile hits a record high of $325B.  Clearly, Warren Buffett is not listening to momo gurus who have convinced their followers that cash is trash.
• Buffett did not buy back any BRK.B stock in the third quarter.  In The Arora Report analysis, this indicates that Buffett thinks the stock is too expensive.  Investors have been running up BRK.B stock not on fundamentals but on sentiment. 
• Berkshire Hathaway cut its stake in Apple Inc AAPL by 25%.  Instead of buying AAPL stock, Buffett has chosen to reduce the position and pay billions of dollars in taxes.  Clearly, Buffett is not persuaded that Apple’s efforts in AI are about to deliver big results.
• In The Arora Report analysis, Buffett is likely looking at the valuation of Apple and the China risk.  
  • AAPL stock is trading at a forward PE of approximately 30.  The 10 year average PE is 20.  
  • About 20% of Apple’s sales come from China.  If Trump is elected, there is a fair probability that Apple may become a pawn in geopolitical maneuvers.
• At The Arora Report, we understand and acknowledge that investors love AAPL stock. As full disclosure, AAPL is in The Arora Report’s ZYX Buy Model Portfolio.  Before sending hate mail for not writing positively about Apple in this article, keep in mind two facts:
  • Buffett has praised Apple, but due to slowing growth and the high valuation, Buffett is being prudent.
  • The Arora Report’s recommendation of AAPL stock has an average price of  $4.68.  AAPL is trading at $221.40 as of this writing in the premarket. 
• Nvidia holders are celebrating.  NVIDIA Corp NVDA will be added to the Dow Jones Industrial Average (DJIA) on November 8, and Intel Corp INTC will be removed.  Also being added is paint maker Sherwin-Williams Co SHW and Dow Inc DOW.  Investors should note the following:
  • On the average, a stock loses about 4.8% one year after being added to DJIA.
  • Very little money is tied to DJIA in a passive manner.  As such, these additions and deletions do not have the same impact as additions and deletions to S&P 500.
  • Typically, only the momo crowd buys on additions to DJIA.
• We understand that just like AAPL, investors love NVDA.  As full disclosure, NVDA is in The Arora Report’s ZYX Buy Model Portfolio. Before sending us hate mail for not writing positively about Nvidia in this article, keep in mind that The Arora Report’s recommendation of NVDA has an average price of $12.55.   
• The Trump trade is pulling back on recent polling data indicating Harris could take Iowa, traditionally a red state.  Investors should remember to separate their politics from their investing to maximize returns.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Nvidia (NVDA).

In the early trade, money flows are neutral in Microsoft Corp MSFT.

In the early trade, money flows are negative in Amazon.com, Inc. AMZN, Alphabet Inc Class C GOOG, Meta Platforms Inc META, Tesla Inc TSLA, and AAPL.

In the early trade, money flows are neutral in SPDR S&P 500 ETF Trust SPY and Invesco QQQ Trust Series 1 QQQ.

Momo Crowd And Smart Money In Stocks

Investors can gain an edge by knowing money flows in SPY and QQQ.  Investors can get a bigger edge by knowing when smart money is buying stocks, gold, and oil.  The most popular ETF for gold is SPDR Gold Trust GLD.  The most popular ETF for silver is iShares Silver Trust SLV.  The most popular ETF for oil is United States Oil ETF USO.

Bitcoin

Bitcoin BTC/USD is seeing selling as bitcoin is part of the Trump trade.

Protection Band And What To Do Now

It is important for investors to look ahead and not in the rearview mirror.

Consider continuing to hold good, very long term, existing positions. Based on individual risk preference, consider a protection band consisting of cash or Treasury bills or short-term tactical trades as well as short to medium term hedges and short term hedges. This is a good way to protect yourself and participate in the upside at the same time.

You can determine your protection bands by adding cash to hedges.  The high band of the protection is appropriate for those who are older or conservative. The low band of the protection is appropriate for those who are younger or aggressive.  If you do not hedge, the total cash level should be more than stated above but significantly less than cash plus hedges.

A protection band of 0% would be very bullish and would indicate full investment with 0% in cash.  A protection band of 100% would be very bearish and would indicate a need for aggressive protection with cash and hedges or aggressive short selling.

It is worth reminding that you cannot take advantage of new upcoming opportunities if you are not holding enough cash.  When adjusting hedge levels, consider adjusting partial stop quantities for stock positions (non ETF); consider using wider stops on remaining quantities and also allowing more room for high beta stocks.  High beta stocks are the ones that move more than the market.

Traditional 60/40 Portfolio

Probability based risk reward adjusted for inflation does not favor long duration strategic bond allocation at this time.

Those who want to stick to traditional 60% allocation to stocks and 40% to bonds may consider focusing on only high quality bonds and bonds of five year duration or less.  Those willing to bring sophistication to their investing may consider using bond ETFs as tactical positions and not strategic positions at this time.

The Arora Report is known for its accurate calls. The Arora Report correctly called the big artificial intelligence rally before anyone else, the new bull market of 2023, the bear market of 2022, new stock market highs right after the virus low in 2020, the virus drop in 2020, the DJIA rally to 30,000 when it was trading at 16,000, the start of a mega bull market in 2009, and the financial crash of 2008. Please click here to sign up for a free forever Generate Wealth Newsletter.