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According to the latest calculations, Warren Buffett’s Berkshire Hathaway had a record $157 billion in cash and cash equivalents.
Cash in hand shows Buffett is not doing business and expects trouble next year, says Lee Munson.
Berkshire bets on growth and value with Apple and Bank of America, 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 says.
Buffett’s Berkshire Hathaway had a record $157 billion in cash such as dollars and Treasury bills as of September 30. That staggering sum represented 15% of the company’s $1 trillion in assets at the time and 20% of the company’s $783 billion market capitalization as of Thursday.
“I think it predicts 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 lucrative deal coming.”
Buffett struck a gloomy tone toward the U.S. economy in May, warning of a “different climate” over low interest rates and liberal government spending during the pandemic. He predicted that most Berkshire subsidiaries will see a decline in profits this year.
As a value investor, Buffett specializes in buying stocks and companies at a discount to their actual value. He has pledged to maintain at least $30 billion in cash for Berkshire at all times to ensure the company never defaults on its financial obligations. Since he has enough dry powder, he can access low-cost investments and make profitable deals 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 such as Coca-Cola and Kraft Heinz, but as valuations have continued to rise over the past decade, he has had to broaden his search for attractive deals. In August 2020, he announced his 5% stake in five Japanese trading companies, which he has since expanded to nearly 9%.
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“Frankly, it’s just hard to find good companies at a reasonable valuation,” Munson said of today’s Buffett challenge. “The fact that he goes to Japan to find companies with reasonable P/E ratios, I think, says a lot about this market.”
Buffett and his team announced this week that they reduced their large holdings in Chevron in the latest 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 dumb strategy, holding both growth and value stocks. The conglomerate’s Apple holding is comparable to owning the S&P 500, given the Big Tech stock’s outsized influence on the benchmark index, while Bank of America is a cheap, large-cap value stock, Munson said.
“I think these are the two winners of these two indices,” Munson said.
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