Heard it again yesterday. I couldn't believe it. A conversation among reasonable people about how the bull is on its last legs.
A few minutes later, I hear that Warren Buffett has bought more Apple (AAPL) , and, astoundingly, has actually purchased 2.2 million shares of Goldman Sachs (GS) , giving him 13 million shares of one of the worst-acting financial stocks I've come across in ages.
What do they have to do with each other?
How about everything.
Here's why.
When we hear that a bull market has died -- and this one has died a thousand deaths -- it usually has to do with some highly visible, poorly acting stocks or groups.
It goes something like this. Remember FANG? Well Facebook (FB) and Netflix (NFLX) holders sure don't. End of FANG, "canary in coal mine" market. I know, soporific, stupefying even -- but you get the gist, because you have heard it a million times.
Then there are the peak people: Peak housing, which we have most definitely seen as prices are starting to crack because of days left on the market. Peak autos, no kidding, take a look at the stocks of Ford (F) and General Motors (GM) . Although importantly, Berkshire Hathaway (BRK.B) actually bought 1.3 million GM shares, to bring its stake up to 51 million shares, or 3.6%. Peak cellphones: we know that from Apple, Samsung and all the suppliers. Peak semis: look at Micron Technology (MU) (don't look at Applied Micro Devices (AMD) , that will throw you off the bear scent).
Then we have trade wars, tariffs, Turkey. I have been to a bull fight, I have to tell you these are the taunts to the bull before the coup de grace, which I had to leave because I couldn't for the life of me think about what the bull had done wrong.
But now let's go back to Berkshire and Buffett. I figured that with all of this buying, Berkshire had to be the biggest shareholder of both Apple and Goldman. I mean, for heaven's sakes, Buffett owns 258 million shares of Apple, a little north of 5%, and 18 million shares of Goldman, which is just a shade under 5%.
It is extraordinary, but he isn't even close to being the largest shareholder of either. Vanguard "owns" 347 million shares and Blackrock 320 million shares of Apple, 7.2% and 6.3%, respectively.
Goldman? This was a tight-knit partnership when I worked there. Vanguard has 24 million -- or 6.4%; BlackRock, 22.9 million -- or 6%; State Street has 21 million -- or 5.6%; and Goldman Sachs itself has 4.95% -- presumably held by employees -- before you get to Buffett's holding company.
Of course, unlike Berkshire, none of these firms is "real" -- meaning they actually own Apple or Goldman. They are repositories of gigantic index funds that buy and buy and buy when the money comes in. They don't sell. They just buy. We used to think -- and many used to say -- that the mom and pop shareholders are the backbone of American capitalism. I guess you could say it is still true, but the ownership is through index funds.
Why is this so important?
Okay, step away from the notion of macro factors and focus on ownership. Apple and Goldman Sachs continue to buy back their shares. Apple had 6.4 billion shares in 2013; five years later it is 4.8 billion. Goldman? It had 471 million shares, and now it has 381 million, and it has actually been constrained by the federal government about how much it can buy!
Can you imagine what it would do with all of its cash if it were allowed to, given its pathetic 9x multiple? Although it might be better served to buy a business that's faster growing than itself, and diversify away from stocks, bonds and commodities.
Now think about this. On the one hand you have Buffett snapping up shares pretty aggressively. On the other hand you have the endless buying of these incredible index behemoths. If we were playing black jack with stocks and you have the index funds and Buffett on your side, how could you not think that you have the edge against the bear market dealer? Do stocks die with that kind of unlimited buying power in their corner?
Now, of course, if the fundamentals are bad, nothing matters. But we have seen time and again that if the fundies are good, the stock goes higher, and if the fundies are bad an activist takes a stake and helps make them better.
In other words, supply v. demand and active v. passive shareholders are playing into the hands of the bull. Just look at the holders and you will know that as long as people are going to save for retirement -- which is pretty much forever -- and as long as there are huge repositories that have to invest -- like Warren Buffett -- you have to be very careful to pronounce the stock market dead. There's just too much life support to let that happen.
