- While the stock market has risen to record highs over the past two years as corporate valuations soar, Buffett has been a net seller over the past eight quarters—a trend that likely continued in Q4. Investors are eagerly awaiting whether his letter to Berkshire shareholders will contain any indications that the “Oracle of Omaha,” who famously sat out the dotcom bubble, thinks a market correction is imminent.
Six decades after Warren Buffett purchased a struggling New England textile company called Berkshire Hathaway, America’s most revered investor will address shareholders in his annual letter on Saturday morning.
Several issues loom large as the 94-year-old reflects on his view of the market and Berkshire’s future, including the $1 trillion conglomerate’s record cash heap.
Perhaps Buffett’s most famous piece of advice came in his 1968 letter to Berkshire shareholders, when he said investors should “be fearful when others are greedy and be greedy when others are fearful.” It appears the “Oracle of Omaha” is heeding his own wisdom: Berkshire held $325 billion in cash and equivalents as of September. Over $288 billion of that pile sat in U.S. Treasury bills, the textbook example of investing at the so-called risk-free rate.
Recently, Buffett hasn’t found many opportunities to use his method of traditional value investing. While the stock market has risen to record highs over the past two years as corporate valuations soar, Buffett has been a net seller over the past eight quarters, per the Wall Street Journal.
Regulatory filings indicate that trend likely continued in the final quarter of 2024. Berkshire paused its selloff of Apple stock but continued downsizing its longtime position in Bank of America while also offloading more than 40 million shares of Citi, slashing its stake by 73%. Buffett did make some new bets, however, taking a $1.24 billion stake in Constellation Brands, the company behind beer labels Corona, Modelo, and Pacifico, and buying more shares of two recent favorites, SiriusXM and Occidental Petroleum.
Still, Buffett is all about buying stocks he believes are trading at a massive discount, noted Jay Hatfield, CEO of Infrastructure Capital Advisors, which manages ETFs and several hedge funds. Those opportunities are virtually nonexistent when stocks are historically expensive and, in Hatfield’s view, much harder to find with markets arguably much more efficient than they were 60 years ago.
“He’s more active when the market’s horrendous,” Hatfield said.
Will Buffett pounce on a market correction?
Investors are eagerly awaiting whether Buffett’s letter will contain any indications that he thinks a market correction is imminent. Berkshire similarly built a massive cash pile before the dotcom bubble burst in the early 2000s, said Matt Malgari, cofounder of Kailash Capital Research and a portfolio manager at L2 Asset Management. He remembers Buffett being derided for sitting on dollar bills and supposedly losing his touch.
“He looked like a genius less than a year later,” Malgari said. “My guess is he is going to repeat that experience.”
The famous Buffett indicator, which calculates the ratio of the market cap of all U.S. publicly traded stocks to the country’s gross domestic product, has surpassed the level it hit before the dotcom bubble burst. Buffett is not necessarily in the business of predicting market swoons, but he emphasized in last year’s letter that his company will always be prepared for one.
“Berkshire’s ability to immediately respond to market seizures with both huge sums and certainty of performance may offer us an occasional large-scale opportunity,” Buffett wrote.
Buffett’s company could pay the market price for all but 24 of America’s most-valuable listed corporations, including names like Walt Disney, Goldman Sachs, Pfizer, General Electric, and AT&T. Companies that size aren’t for sale very often, however. There may be many smaller firms trading at attractive valuations, but those wouldn’t move the needle at a company as large as Berkshire.
“Outside the U.S., there are essentially no candidates that are meaningful options for capital deployment at Berkshire,” Buffett wrote last year. “All in all, we have no possibility of eye-popping performance.”
Even if he says the same thing this year, however, that doesn’t lower the anticipation for Malgari. A longtime Buffett acolyte, he used to create bound collections of Buffett’s annual letters—well before they were easily available online, with hard copies sold on Amazon—and would distribute them to friends.
“This weekend is set aside for Berkshire,” he said.
It’s safe to say he’s not alone in the world of investing.