Warren Buffett is regarded as one of the best investors of all time. His company Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) has returned over 20% per annum in book value since Buffett took the helm in 1964.
Put another way – BRK-A shares were going for around US$19 in 1964. Today, one share will set you back US$340,185 (no missing decimals there) – which values the entire company at US$554.25 billion. Enough said.
So it goes without saying that this is an investor whom people keep an eye on.
Buffett is a famous stickler for ‘value investing’ – he loves to buy companies for what he sees as less than their actual worth.
You normally won’t find Berkshire Hathaway chasing start-ups or growth stocks. Buffett only invests in companies that he understands – and being nearly 90 years old, his grasp of technology and emerging trends in the online world isn’t the sharpest.
Still, many of his largest positions like Coca-Cola, Bank of America, Visa, American Express Co. and more recently Apple have been evergreen winners for him and Berkshire shareholders.
So how is Buffett preparing for 2020?
A look at Berkshire’s most recent government filings paints an interesting picture (in the US, companies have to disclose their holdings to the Securities and Exchange Commission (SEC) every quarter).
It reveals that Berkshire is sitting on a pile of cash 128.2 billion dollars high – up from US$122.4 billion in the previous quarter. For some perspective, the company only had US$23 billion in cash back in 2009.
In total Berkshire has around US$214.7 billion currently invested in public companies. That gives Berkshire a cash-to-shares ratio of around 37% (it’s worth noting that Berkshire also owns a slew of private, unlisted companies as well).
As a percentage of the company’s total valuation, Berkshire’s cash position is about 23%.
Now Buffett has still been investing over the past three months and year, but not at a rate that stops his cash pile growing larger every quarter.
In my opinion, this tells us that Buffett regards the markets as overvalued in general – which means he can’t find anywhere to invest this growing cash pile. It also might indicate that he thinks that these conditions won’t last forever.
One of my favourite Warren Buffett quotes is “when it rains gold, you want to go outside with a washtub, not a thimble”. By ‘rains gold’, Buffett is referring to a stock market crash when shares are ‘on sale’. By thimble and washtub, he means the ability to catch this gold with cash.
Buffett certainly has a massive washtub ready. I think it would be wise to invest in your own!
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Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Berkshire Hathaway (B shares) and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), and short January 2020 $220 calls on Berkshire Hathaway (B shares). The Motley Fool Australia has recommended Berkshire Hathaway (B shares). We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.