Having amassed a net worth of over $80bn from the stock market, Warren Buffett is widely regarded as the greatest investor of all time. So when he makes a move, it’s worth taking note. With that in mind, here’s a look at what Buffett’s doing right now.
Colossal cash pile
Over the weekend, his investment company Berkshire Hathaway released its third-quarter results. One of the most interesting takeaways from the results, in my view, was that Buffett is continuing to build up a large cash pile right now.
According to the latest results, it had a record $128bn in cash and short-term investments at the end of September, up from $122bn at the end of the previous quarter. Make no mistake, that’s a huge amount of cash to have on the sidelines – it’s around six times the amount of cash Buffett had on hand a decade ago. So, what does this colossal cash pile tell us?
Stock market pullback
Well for a start, the monstrous cash pile indicates the ‘Oracle of Omaha’ is not seeing many buying opportunities at the moment. Buffett has said for a while he’s looking to make a major ‘elephant-sized’ acquisition for Berkshire, but the growing cash pile suggests he’s not seeing anything that offers much value right now.
Secondly, to my mind, it suggests Buffett is anticipating a market correction. We all know that he likes to be ‘greedy when others are fearful,’ and this huge cash pile indicates to me he’s preparing for a pullback. $128bn would certainly give him some serious buying power if global stock markets were to decline in the near future.
Smart move
Personally, I think this is a very smart move from Buffett. The reason is, I’m seeing a number of warning signs that suggest a market correction may not be far off. Just look at some of these red flags:
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Sales by company insiders in the US are running at their highest level since the tech bubble, according to data from Smart Insider
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Confidence among CEOs recently fell to its lowest level in a decade, according to the Conference Board Measure of CEO Confidence survey
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The International Monetary Fund recently advised that the global economy is now in a “synchronised slowdown”
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The UN recently warned a 2020 recession is now a “clear and present danger”
Of course, no one knows for sure how markets will perform in the near term. However, in this kind of environment, where there are a number of alarm bells going off, having some cash on the sidelines is a sensible idea, in my opinion.
If the stock market was to experience a pullback in the near future, having some cash available could allow you to capitalise while others are panicking, and buy a selection of high-quality stocks at attractive prices.