One popular investment tip is “Be fearful when others are greedy, and be greedy when others are fearful.” It’s fitting that this advice comes from the world’s most famous investor, Warren Buffett, who first offered a version of it in a letter to shareholders in 1968. His words are more timely than ever as the stock market reaches new heights and everyone seems to be… They’re in on the action — except for Buffett himself. Has the Oracle of Omaha become afraid?
Even as corporate valuations rose, Buffett never sat on more dollar bills. His conglomerate, Berkshire Hathaway, currently has $325 billion in cash and cash equivalents, according to the company’s quarterly report. Financial statements. More than $288 billion of this pile is in US Treasury bonds, the poster child for so-called “risk-free” interest rate investing.
Meanwhile Oracle He has It was active in the market – in the form of a selling spree. During each of the last eight quarters, CNN Reports Berkshire has offloaded more stock than it bought, most notably selling two of its three largest holdings — Apple and Bank of America.
Apple accounted for $178 billion of Berkshire’s portfolio at the end of last year, nearly five times the size of the group’s next-largest position. While the iPhone maker, long praised by Buffett, remains the highest holding in Berkshire, the group has cut its stake by more than half. As of September 30, the company owns $69.9 billion worth of Apple stock.
The gains from those investments brought Berkshire’s quarterly net earnings to $26.25 billion, or $18,272 per Class A share. As the chart below shows, the group’s shares have easily outperformed the broader market, doubling the S&P 500’s return over the past three years.
Will Buffett make a big acquisition?
But, besides making huge profits, will Oracle also exit the market because it believes the market is overheated? The famous “Buffett Index”, which compares the value of all listed stocks to the size of the US economy, indicates that this is possible.
Using the Wilshire 5000 Index as a proxy, The Wall Street Journal calculated This number is expected to reach approximately 200%, indicating that the market has expanded more than it did at the height of the tech bubble.
If the market declines, Berkshire will certainly have the funds to take advantage of the opportunities. the magazine Buffett notes that it can cash a check for all but 25 or so listed U.S. companies, including names like Walt Disney, Goldman Sachs, Pfizer, General Electric and AT&T.
While Buffett may be shying away from rising stocks due to inflated valuations, it’s also possible that he’s just waiting. as magazine “What we really like to do is buy great companies,” he reportedly said at the 2023 annual meeting. “If we can buy a company for $50 billion or $75 billion or $100 billion, we can do it.” There simply aren’t many companies like that. Volume is in the market, so that could also explain why Berkshire isn’t spending.
the magazine She noted that the company’s cash hoard is likely a reflection of how its current position prevents it from making big moves. Berkshire would currently have to pay a premium of 20% or more on any type of acquisition. At the same time, the company’s sheer size has made it increasingly difficult for Berkshire to replicate its tried-and-true model of spreading its profits to consistently beat the market.
At last year’s annual meeting, Buffett also suggested he would hold more cash to prepare for higher capital gains taxes. However, the tax increases believed to be imminent may not materialize anytime soon as Trump returns for a second term in the Oval Office.
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