Legendary investor Warren Buffett has been unloading a hefty amount of stock lately, sending the cash pile at his firm, Berkshire Hathaway, to a new record high. And some folks are worried that could be a sign that the “Oracle of Omaha” isn’t feeling great about the economy or market these days.
As of the end of September, Berkshire was sitting on $325 billion in cash (and cash equivalents) – nearly double the amount it had in January. And sure, its cash hoard was already humongous and setting new records, quarter after quarter, but investors could generally just brush that off because the pile wasn’t that big relative to the firm’s colossal size. If anything, the increase seemed like a natural consequence of the company’s expansion. But that explanation is no longer valid, with Berkshire’s cash pile, relative to the total value of its assets, surging to 28% at the end of June – its highest level in at least three decades.
Now, Berkshire’s been known to gather huge relative cash positions before. Back in 2005 – just a couple of years before the global financial crisis – it held 25% of its assets in cold-hard cash (or cash equivalents). And plenty of folks would argue that Buffett was too early in slashing his market exposure back then, since he missed out on two years of gains, but in the end, it was a sensible risk-reward tradeoff. The move allowed him to avoid deeper losses during one of the worst bear markets in history and gave him a cash pile he could use to scoop up investments at bargain prices during the crisis.
To be sure, Buffett has always balked at the notion that he can somehow predict the future or time the market. He made his name as a long-term investor who finds good companies at reasonable prices and holds them for years (if not decades). But Berkshire’s surging cash pile can’t be ignored. Even if it doesn’t mean that Buffett is bracing for deep stock-market declines, it tells us that he’s struggling to find attractive-enough investment opportunities in the stock market – especially when he can instead put his money into ultra-safe US Treasury bills yielding more than 4.5%.
