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Warren Buffett’s Berkshire Hathaway had a record $157 billion in cash and cash equivalents at last count.
The cash on hand shows Buffett isn’t finding bargains and expects trouble next year, says Lee Munson.
Berkshire is betting on growth and value with Apple and Bank of America, the asset manager says.
Warren Buffett’s cash pile is bigger than ever as he senses trouble on the horizon and struggles to find bargains, a money manager said.
Buffett’s Berkshire Hathaway had a record $157 billion in liquid assets, such as dollars and Treasuries, as of September 30. That staggering amount represented 15% of the company’s $1 trillion worth of assets at the time and 20% of the company’s $783 billion market capitalization as of Thursday.
“I think he foresees trouble next year,” Lee Munson, president and lead investor at Portfolio Wealth Advisors, told Yahoo Finance on Thursday. “He is cautious and doesn’t see any profitable deals coming.”
Buffett struck a stern tone on the U.S. economy in May, warning of a “different climate” compared to low interest rates and liberal government spending during the pandemic. He predicted that most of Berkshire’s subsidiaries would see earnings declines this year.
As a value investor, Buffett specializes in buying stocks and companies at a discount to their true value. He has promised to always keep at least $30 billion in cash for Berkshire to ensure the company never defaults on its financial obligations. By having enough gunpowder, he can access low-cost investments and make profitable trades even in difficult times, as he did during the 2008 financial crisis.
“The fact that Warren Buffet goes to Japan says a lot about the US market”
Buffett made his fortune investing in American companies like Coca-Cola and Kraft Heinz, but as valuations continued to rise over the last decade, he had to broaden his search for attractive businesses. In August 2020, he announced his five percent stake in five Japanese trading houses, which has since expanded to nearly nine percent.
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“Frankly, it’s hard to find good companies at a reasonable valuation,” Munson said of Buffett’s current challenge. “I think the fact that he goes to Japan to find companies with reasonable P/E ratios says a lot about this market.”
Buffett and his team announced this week that they reduced their large holdings in Chevron last quarter and exited a number of long-held positions. However, they did not touch their two largest holdings, Apple and Bank of America.
Munson said Berkshire is essentially pursuing a dumbbell strategy, holding both growth and value stocks. The conglomerate’s stake in Apple is comparable to its ownership of the S&P 500, given the outsized influence of Big Tech stocks on the benchmark index, while Bank of America is a cheap, large-cap stock, Munson said.
“I think those are the two winners of those two indices,” Munson said.
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