Warren Buffett’s cash – $122 billion

BI:

Warren Buffett’s mountain of cash may be a warning to investors that stocks are overvalued and that a crash is around the corner. The investing guru’s Berkshire Hathaway conglomerate held a record $122 billion in cash at the end of June, funds that could be deployed to boost its holdings in Apple, Amazon, and Bank of America or used to acquire companies.

Berkshire’s cash pile is worth nearly 60% of its $208 billion portfolio of public companies. In the past 32 years, the group held more cash as a percentage of its portfolio only in the years leading up to the financial crisis of 2008, according to Bloomberg.

One reason Buffett might prefer to keep cash in the bank is that stocks are overvalued. The so-called Oracle of Omaha’s favorite yardstick for the stock market — its capitalization as a percentage of gross domestic product — supports that claim.. That ratio reached 154% in 2017 — surpassing the 146% it notched at the height of the dot-com bubble in 2000 and the 137% it posted just before the financial crisis in 2007, Bloomberg said. Given the stock market’s gains over the past 18 months, that percentage is undoubtedly even higher today.

Berkshire Hathaway has been amassing cash for a while. The company boasted $111 billion at the end of June 2018, a record at the time. A crash didn’t immediately follow, indicating the cash pile doesn’t necessarily signal an imminent downturn. Buffett would prefer to put Berkshire Hathaway’s cash to work in acquiring companies rather than buying stock, he wrote in his latest letter to shareholders. But current valuations are prohibitively high.

“We hope to move much of our excess liquidity into businesses that Berkshire will permanently own,” he said. “The immediate prospects for that, however, are not good: Prices are sky-high for businesses possessing decent long-term prospects.” “That disappointing reality means that 2019 will likely see us again expanding our holdings of marketable equities,” he added. “We continue, nevertheless, to hope for an elephant-sized acquisition.”

Re Bloomberg above, they’ve said some nutty things about the G7 and other matters. As for the 2007 comment above, that’s when the sub-prime disaster was just starting. We don’t see anything comparable on the horizon, unless the China overleverage situation is much worse than it seems at the moment. Stay tuned.

3 Responses to “Warren Buffett’s cash – $122 billion”

  1. Neil Says:

    A crash in China, or even Europe, should only help the U.S. stock market, I would think. The “flight to safety” would land here. And whatever one might think about the future financial obligations of the Treasury, they’re still in the future, whereas other currencies are in trouble right now.

  2. Neil Says:

    Also, Buffet’s needs are different from most investors. He can’t just sell his enormous holdings. That’s why he prefers to buy firms outright. At the moment, valuations really are too high for his usual schtick, but that doesn’t mean they can’t go higher.

  3. feeblemind Says:

    How does one accumulate such a pile of cash without having to pay some sort of tax to free it up, either income or capital gains??

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