Warren Buffett's Berkshire Hathaway has made headlines recently after nearly doubling its cash, Treasury bills, and liquid assets, reaching a historic $334 billion. This significant cash position was accompanied by the sale of $134 billion worth of stocks, with the company only spending around $3 billion on share buybacks. For comparison, the previous year saw Berkshire selling just $24 billion and repurchasing over $9 billion of its stock. "Despite what some commentators currently view as an extraordinary cash position at Berkshire, the great majority of your money remains in equities," Buffett reassured investors in his annual letter.
A closer look at Buffett's investment strategy reveals some bold moves, including significant reductions to Berkshire's stakes in two major holdings, Apple and Bank of America. Once boasting 906 million shares valued at $174 billion, Berkshire's Apple position was slashed by 67% to 300 million shares worth $75 billion by December 2024. Similarly, holdings in Bank of America were cut by 34%, from $41 billion to just under $30 billion. Over this period, Apple and Bank of America experienced declines of 15% and 20%, respectively, from their November peaks, though Apple still managed to post a 15% gain for 2024.
Why did Buffett make such sweeping changes? One key factor may be the shift he perceives within the market. The yield on one-year U.S. Treasuries has skyrocketed from below 1% to over 4% within three years, making bonds significantly more attractive. Rising inflation and the Federal Reserve's strategies to combat it have undoubtedly influenced Buffett’s cautious approach. He indicated last year, "I don’t mind at all, under current conditions, building the cash position," signifying his preference for holding cash amid overvalued equity markets.
Experts seem divided on the wisdom of Buffett's strategy. Hedge fund manager Anurag Singh mentioned, "Warren Buffett's cash call of $325 billion—about 50% of his portfolio—does make sense after all," pointing to the high risk associated with overly optimistic stock prices. Meanwhile, financial author Robert Kiyosaki has been vocal about impending doom, claiming, "The EVERYTHING BUBBLE is bursting," predicting it could lead to historically severe market crashes.
Buffett's past actions during the 2008 financial crisis remind investors of his opportunistic nature. Instead of retreating during market downturns, he aggressively bought stakes in distressed companies like Goldman Sachs and Bank of America when prices plummeted. If stocks continue declining, it’s likely Buffett will find similar opportunities to invest.
His renowned long-term approach to investing is perhaps best encapsulated by his own advice: "There is simply no telling how far stocks can fall in a short period." He reiterated this perspective by echoing the wisdom of Rudyard Kipling’s poem If, stating, "If you can keep your head when all about you are losing theirs... Yours is the Earth and everything that's in it." This mantra could serve as Buffett's guiding principle as he navigates current market volatility.
But how does one assess whether Buffett's strategy signifies foresight or miscalculation? Critics argue he may have acted too soon, forfeiting billions as stock valuations remain high and some assets continue to appreciate. Conversely, supporters suggest he is playing the long game, waiting for favorable conditions to make his next major investment.
With one of the largest cash reserves of any investor, Berkshire's position places Buffett at the forefront, preparing for the next major market downturn. When the window of opportunity opens, history suggests he won’t be settling for minor investments—he’ll be ready to capitalize significantly.
While opinions about Buffett continue to circulate amid market downturns, one thing stands clear: his strategic shift to hoard cash during turbulent times will be closely monitored. His historical success leaves many wondering if his current decisions will result in riches or regret. Time alone will reveal whether his strategy of holding reserves is prudent or if he'll later rue the chance of benefiting from recent stock gains.