Warren Buffett is sitting on $168 billion in cash. Maybe he just revealed why, and it makes perfect sense.

By | March 18, 2024

Some of the most successful and respected coaches have something in common: they’re okay with taking risks, but not okay with gambling. This is a subtle nuance that can also be applied to investing.

Warren Buffett is one of the most admired investors in history. While the CEO of Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) has amassed a fortune worth billions How He did it, that’s more important.

In his most recent annual letter to shareholders, Buffett wrote that the “markets are exhibiting much more casino-like behavior now than when I was young.” It’s a sobering statement, addressing views on risk, investment approaches and age in one simple explanatory way.

That’s kind of the point. Simplicity has been central to Buffett’s strategy for decades. Now that Berkshire has a record $168 billion in cash and short-term investments on its balance sheet, investors should certainly be wondering what Buffett is thinking.

I would say he just told us, and I think it makes a lot of sense. Let’s dissect Buffett’s investment philosophy and analyze how and why it has become an important part of building generational wealth.

Slow and steady wins the race

Since 1965, Berkshire Hathaway shares have risen 4,384,748%. Although Buffett is often called the Oracle of Omaha, he is not some kind of prophet or sage with the ability to see into the future. Surprisingly, Buffett’s investment strategy is quite simple.

Some money managers are attracted to high-growth industries such as technology or genomics, regardless of risk profiles or unproven breakthroughs.

Buffett is the opposite. Its portfolio is filled with large, blue chip companies that often have similar characteristics: stable, predictable growth, consistent cash flow generation and a history of rewarding investors through dividends or share buybacks.

Warren Buffett smiles.

Image source: The Motley Fool.

What is Buffett waiting for?

Perhaps the most difficult pillar of Buffett’s investing style is his unwavering patience. Berkshire often takes positions in companies and holds them for decades. When you consider how much a stock can ebb and fall in a given year, this practice is undoubtedly easier said than done.

Given his ability to stand on the sidelines and observe how things develop, it’s not too surprising that Buffett is sitting on such a large hoard of cash rather than deploying it aggressively.

Keep in mind that the past few years have been a rollercoaster for the macroeconomy. Inflation rose to unusually high levels, prompting the Federal Reserve to take action in the form of several rate hikes.

Although Fed Chairman Powell has hinted at possible rate cuts in 2024, this is by no means a guarantee. My suspicion is that Buffett is waiting for some action from the Fed and for any election-induced market volatility to subside before making his next set of moves.

What will be Berkshire’s next step?

I wish I knew what Buffett’s next move will be, but I don’t. And speculating about the companies he might be interested in, given his financial strength, would be irresponsible.

What I can say is that in this euphoric, casino-like market, Buffett is keeping a close eye on his cards – which is appropriate for him. The main theme here is that through a series of successful investments, Buffett has built a strong balance sheet – one that gives him a level of flexibility that is the envy of most money managers.

Despite markets trading at record levels, Buffett is doing what he always does: avoiding the gamble and waiting patiently, then emerging with a major chess move when the markets least expect it.

Instead of studying Berkshire’s portfolio and trying to identify the next company in which Buffett could take a stake, I would approach things differently. Buying shares in Berkshire is a good option for investors who are looking for returns like Buffett’s but also want some isolated risk.

Furthermore, building a position in Berkshire automatically provides exposure to all of Buffett’s strategic choices, but in a passive manner. Given Berkshire’s rock-solid reputation, coupled with the fund’s stunning long-term returns, I now see this as a great opportunity to pick up some shares — for Buffett makes his next move.

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Adam Spatacco has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.

Warren Buffett is sitting on $168 billion in cash. Maybe he just revealed why, and it makes perfect sense. was originally published by The Motley Fool

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