If the stock market’s recent behavior has you confused, you’re not alone. Even some of the most respected investors in the world admit to being befuddled by it.

For proof, consider the sad case of Masayoshi Son, CEO of tech investment fund SoftBank Group (OTC: SFTBY). Last week, he acknowledged that his fund lost $23 billion during the second quarter of this year.

Son did not attempt to deflect blame for his fund’s horrid performance. “When we were turning out big profits, I became somewhat delirious,” he said, “and looking back at myself now, I am quite embarrassed and remorseful.”

It was not that long ago that Son was regarded as a tech sector savant. Everyone on Wall Street wanted to know what he was buying so they could do the same.

Now, Son is a big seller of some of those same positions. To raise cash for his beleaguered fund, he sold more than $10 billion of Alibaba (NYSE: BABA) during the second quarter.

Unfortunately for his fund’s shareholders, that sale occurred while BABA was near its lowest share price in over five years. Two years ago, BABA was trading above $300. Three months ago, it bottomed out below $90.

Not surprisingly, SoftBank’s share price has followed a similar arc. Since peaking at $50 eighteen months ago, SFTBY traded below $20 earlier this month.

The story is the same for the ARK Innovation ETF (ARKK), managed by tech sector rock star Cathie Wood. It has also lost more than half its value since February 2021.

Those two funds hold many of the same securities and employ a similarly aggressive investment style. That approach worked well while interest rates were low and optimism on Wall Street was high.

Omnipotent No More

But now that rates are rising and momentum stocks are sinking, Son and Wood are no longer viewed as omnipotent. Their respective funds have taken a pounding and they have no one to blame but themselves.

And while they are selling stocks to raise cash, another investing legend is buying them up. During the second quarter, Berkshire Hathaway (NYSE: BRK-A) CEO Warren Buffet bought nearly $4 billion of stock.

According to the Form 13-F submitted by the company last week, Berkshire increased its stake in Apple (NSDQ: AAPL), Chevron (NYSE: CVX), Occidental Petroleum (NYSE: OXY), Activision Blizzard (NSDQ: ATVI), Paramount Global (NSDQ: PARA), Celanese (NYSE: CE), McKesson (NYSE: MCK), Markel (NYSE: MKL), and Ally Financial (NYSE: ALLY).

Those nine names perfectly illustrate Buffett’s approach to investing. Instead of focusing on a sector or theme, he simply buys value when he sees it. He also sells stocks when he feels they have become overvalued.

That is why I was intrigued by Buffett’s decision to reduce his position in General Motors (NYSE: GM) during the quarter. Currently priced at roughly six times forward earnings and less than one times sales, GM is arguably the epitome of a value stock.

Perhaps Buffett grew tired of watching GM’s share price steadily erode from above $67 in early January to below $45 by the end of March. Or he may have known in advance that the company was going to reinstate its dividend next month at a much lower rate than what it was paying before it suspended dividend payments two years ago in the wake of the coronavirus pandemic.

Avoiding an Unforced Error

However, Buffett did not have to sell GM if he wanted to generate more income with that investment capital. Instead, he could have sold a covered call option on his stock. Here’s how that works.

Last week while GM was trading at $39, the call option that expires on December 16 at the $44 strike price was selling for $2. That works out to an options premium yield of roughly 5% over four months, or 15% on an annualized basis.

If GM remains below $44 over the rest of this year then that option would expire with no value. In that case, Buffet would get to keep the $2 options premium and his shares of GM.

If GM rises above $44 by the expiration date then the stock would be called away from Buffett at that price. In that case, he still keeps the $2 options premium but loses his optioned shares.

However, for that to happen GM must appreciate 13% over the next four months. When you include the options premium, the total gain on this trade would be 18%.

I don’t know many investors that would squawk about a 54% annualized rate of return. Especially when it does not involve overpriced tech stocks or faddish cryptocurrencies.

I have no sympathy for Masayoshi Son or Cathie Wood. Even the most admired money managers in the world make mistakes, but in this case Warren Buffet may have made an unforced error.

You and I operate on a different level from them. That is why I believe covered call writing is one of the best ways for us “little guys” to compete with the top guns on Wall Street.

That’s why you should consider our premium trading service, Rapier’s Income Accelerator, helmed by my colleague Robert Rapier. He’s one of the shrewdest covered call writers I know.

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