Two names from the “Richest in the World” list have been making not-so-subtle moves to stockpile cash. Have you asked yourself “what do they know about the economy that I don’t?”
It’s a great and timely question that may save you the pain of watching your portfolio drop by 20%, 30% even 40% over the course of the next year.
Let’s follow the money trail and then I’ll give you a simple way to protect your portfolio from whatever the market might throw your way.
The Walton family is the richest family in the world, with a net worth of $432.4 billion as of December 2024. The Waltons are the heirs to the Walmart fortune and one of the largest holders of Walmart stock through the Walton Family Trust.
Walmart (WMT) is the lifeblood of the economy.
The company is the largest retailer in the world by revenue. It’s also the largest private employer in the world.
All of that makes Walmart one of the best “canaries in the coalmine”. If the economy coughs, Walmart stock is going to catch a cold.
From the signs of it, the Walton’s family doctor is worried that Walmart may be getting sick.
Earlier this week, the Walton Family Trust completed another sale of Walmart stock.
The trust sold a total of 2,821,510 shares worth roughly $307,528,277 million for this sale.
The sale is the second in as many weeks as the trust made a sale of stock in the end of February that raised $227,816,232 in cash for the family.
Looking back a little further… in December, the Walton Family Trust sold $633,671,625 in Walmart stock.
In total, the Walton family has raised $1.17 billion in cash from the sale of Walmart shares wince late December. Why?
Remembering that Walmart is the lifeblood of the economy, its simple… the Walton’s have figured out that 2025 is likely to be a “lost year” for the markets.
To add just a little more perspective, The Walton Family Trust was a net purchaser of Walmart stock following the pandemic as the economy geared-up for its fight with inflation.
Walmart became well-known as one of the toughest inflation fighting companies in the market, earnings returns of 6% and 18% over the two year the inflation covered.
Like Kroger, Walmart used the opportunity to fight inflation by increasing supply and demand of its private label food products. The move increased profits for the company, leading to 170% gains in the stock as of its all-time highs last month.
So why are the Waltons selling?
Last month, Walmart announced that various aspects of the economy were putting pressure om their outlook.
The company acknowledged a delicate macroeconomic environment and increased its caution about uncertainties related to consumer behavior and global economic conditions.
Walmart specifically noted impact from anomalies like the avian flu affecting egg prices, which they expect to normalize over time.
But there are larger forces out there that are set to work against Walmart and other retailers… tariffs.
Walmart, like many retailers, imports a large percentage of iits products sold from China, Mexico and Canada.
It is estimated that 70-80% of the products sold at Walmart stores in the United States are imported from China. This estimate excludes food products, as most food items in Walmart superstores and grocery stores are sourced and produced domestically within the U.S..
The tariffs are set to put Walmart in a bad spot.
This week, the company sent a communication to its suppliers that they would need to work on lowering prices. It’s a common move for Walmart. The company has flexed its “largest retailer in the world” muscle many times to “Roll Back” prices. For the most part, it works.
This time it is going to be harder. In many cases, the tariff is originating with the very suppliers that Walmart is asking to lower their prices since they are bringing the products into the U.S., not Walmart.
The bottom line is that Walmart stock is not as likely to be the inflation fighter this time around. Instead, the stock is set to move lower, which is why we have the seldom occurrence of the Walton Family Trust’s billion dollar sale.
For more than a year, Warren Buffet’s Berkshire Hathaway has been raising cash at a dizzying pace.
The institutional investing company has been selling everything from Bank of America stock to a few different S&P 500 exchange traded funds (ETFs) to some of the company’s share of Liberty Media Formula One stock.
Buffett’s latest quarterly update revealed that the Oracle of Omaha has accumulated record high cash holdings in his Berkshire Hathaway portfolios. The move is typical when Buffett detects uncertainty and corrections in the market, allowing him to prepare to buy stocks when blood is running through the streets.
In 2009, Berkshire Hathaway went into the year having increased cash by 146%. At the time, it was the largest cash position that the company had held, just like today. With the S&P 500 P/E ratio moving above the mid-20s, Buffett was clearly planning for what he knew was to come.
Deregulation in the banking and financial sector had allowed several of the banks and other companies providing financing (GE included) to bolster their balance sheets and valuations. It’s one of the reasons that Buffett toargeted this sector for his valuation investments.
Today, similar deregulation may be entering the picture as well as a lowering of regulatory oversight in the energy patch. Note that Buffett’s investments in oil and energy companies have all but paused for now.
My guess is that he sees blood running through the streets in both sectors over the next six to 12 months.
Buffett is “Loaded for Bear” as they say, which coincides with a few of the signals that the market is sending.
It’s quite simple.
Investors have been trained to “Buy the Dip” any chance they get. The idea is that sharp declines in stocks like we’ve seen over the last month are temporary and that prices will be back to “normal” in just a short amount of time.
That seems to not be the case this time around.
Various indicators in the market are suggesting that we are in for a long, drawn-out bear market move as the S&P 500 and Nasdaq 100 (QQQ) are likely to shed another 10-20% from today’s value.
The good news, this will turn into one of the better “Buy the Dip” moments for you and I as investors.
The bad news, you’ve got to have cash to take part in that rare opportunity to buy a bear market bottom.
Speaking to investors that are still holding 100% allocations to stocks here…. Take profits!
There is a common theme among investors that once the market is down 5-10% or more they don’t want to see because its easy to think that you’ll have a better opportunity to get out at higher prices.
Stop thinking that way. The time ti “time” the market top has passed. Now, its all about keeping the wealth that you have.
Didn’t sell NVIDIA at $140 and you wish you had? Think about selling it at $110 before the stock is trading at $90.
It has taken everything that I’ve had to sell leaps on Palantir as this is truly one of the stocks that will lead the market higher through 2025, but selling at $100 is far better than the $80 its trading at now.
This is one of the stocks that I have on Money Morning’s “Buy the Dip” stocks list, but there’s still a chance that the stock could drop another 35% from today’s price. Take some of your profits now!
Go through a simple exercise of reviewing your portfolio and asking, “how long can each stock go”. From there, you’ll be able to raise enough cash to survive the next large drop in stocks while preparing to buy that long-term dip.
Second, Hedge your portfolio
Consider adding an inverse Exchange Traded Fund (ETF) or a defensive put to your portfolio.
Inverse ETFs are an investment that increase in value as the market goes down.
Click here for a brief breakdown on inverse ETFs
For example, the Ultrashort QQQ ETF (QID) goes up roughly 2% for every 1% decline in the Nasdaq 100.
Adding the QID to a portfolio will help to offset losses that you would see from holding large cap technology stocks in your portfolio.
As it stands right now, the QID shares are trading 25% over the last three weeks as the Nasdaq 100 has fallen about -10% over the same time period.
The ETF is an easy addition to a portfolio since you buy it just as you would any stock.
Pro tip: Don’t get too greedy with a hedge like the QID. Set a target price for closing the positions. There’s nothing worse than holding a portfolio hedge too long to have it start losing money.
My intermediate-term price target for the QID shares has shifted higher following the Nasdaq 100’s break ot its 200-day moving average.
As of now, my charts suggest that a potential closeout for a QID position would be between $45 and $47.50. That’s 15-20 percent higher than where it sits as of this writing.
One Step Further, Use an Option to Protect Your Portfolio
Put options are a great way to protect a portfolio in these conditions, this is how the pros do it.
Put option values increase as the underlying stock or index goes down.
This is a more advanced approach to hedging your portfolio, but it’s also the most efficient. Think of this approach like you would a term insurance policy. You pay a premium for a put option for a certain time period’s worth of protection. At the end of that time, the protection expires.
Read more about this approach here
We’ll talk about three simple hedges along with specific ideas in next week’s Money Morning Outlook
Until then, stay safe in the markets.
