Warren Buffett amasses more cash and sells more stock
cnbc.com
cnbc.com
It's at a ratio today that dwarfs the dot-com runup.
https://www.longtermtrends.net/market-cap-to-gdp-the-buffett...
1. Investor valuations of the total value of all publicly traded companies. 2. The fraction of the total valuation of all firms that in publicly traded.
Imagine a world where all businesses are totally static, report steady earnings, etc. One day, dozens of formerly privately held firms IPO. This indicator increases, but this doesn't not reflect any change in the valuation of the legacy firms: merely that more of the value of all enterprises is being publicly traded.
Also, could an increase in internationalization explain the relative difference between the Buffet Indicator today vs 25 years ago during the DotCom boom?
Of course, if you think that AI and tech more broadly is going to increase our rate of economic growth over the next few decades, you would expect the "correct" value of that ratio to increase significantly.
And that's, of course, ignoring the other factors like interest rates, inflation, etc. that need to be taken into account as well.
They don't increase current GDP.
Valuation of stocks is based on future expected profitability, while GDP is today's GDP.
It seems like "many market participants are mis-estimating risk" is exactly the sort of thing that this metric is intended to measure.
If you think the crash will happen, then it might be cheaper to buy after the crash.
Of course it's always cheaper to buy after a crash if there is one.
But if he’s the one who is fearful, which one should I be?
[1] https://www.investopedia.com/articles/investing/012116/warre...
It’s about looking at the economy, the companies, the prices. Overvalued stock is people being greedy etc.
It’s not about looking at what a specific person does.
Quite the contrary. If some professional with a track record you trust makes a call, it’s something you listen to if you’re an amateur.
As the quote alludes to, depends on what "others" are: greedy or fearful.
That last bit isn't just a random gripe, but key: something about the state of the financial system makes even serious talk of a downturn verboten. The mandate to prevent bank runs has now been extended to a general effort to dissuade people from pulling their money out of anything it might be in. My completely uneducated layman's suspicion is that this is because so much of the economy's financial infrastructure relies on the aforementioned stability. Valuations can't go down because they're collateral for loans which guarantee cash flow to businesses that everyone's retirement is invested in, the health of which is the only reason consumer sentiment stays high enough to justify workforce investment which, of course, pays the bills, etc.
What I'm trying to say is that there will be no crash, in the sense that the current system stays viable. If things ever rain, they will pour, and you're looking at a foundational collapse where basic assumptions about the structure of our economy no longer apply (e.g., property ownership and debt rights).
But I think it's difficult to have that happen again. A lot of the action mentioned before must have been taken with an eye towards never getting that close. Unprecedented things like calling on the FDIC's entire reserve to backstop a handful of banks (as an emergency measure, and then sorting it out later), regardless of the size of the accounts that otherwise would have been bailed in. Or the many, many Fed programs to provide emergency liquidity. Simply not taking the initiative in these cases would have represented the perfect chance to start a controlled demolition and clean-out of troubled positions. But that's assuming the demolition can be controlled, and that there are any positions that aren't troubled. Could be that every valuation is out of wack, that you can't correct without upending everything. It's possible that we are in a completely fraudulent system.
And here is what happens to your money in equities: https://www.officialdata.org/us/stocks/s-p-500/1900#inflatio...
You might get lucky and switch to cash from equities at just the right period of time to come out ahead, but you're better off just leaving your cash invested in equities and buying lotto tickets if you feel like gambling.
It's worth noting that Munger's kids are more well off in terms of personal development and career growth compared to Buffet. All of Buffet's kids are basically philanthropists. Why bring this up? Because it brings up some doubts about successorship
And to play devils advocate to that: Berkshire probably almost generates cash as fast as they would ever buy back stock.
Another place where normal corporations would be affected by stock price is when they want more liquidity for operations via debt. This doesn’t apply to BRK because they already have a massive stockpile of cash. But stock price is not that isolated from company operations if a lot of investors start pulling out money (by selling stock).
Now, he doesn’t have a magic device that tells the future. But it’s also not hard to tell that we’re in a economically uncertain and overextended time.
He's been raising cash holdings for years.
"The mystery over Warren Buffett’s surprisingly defensive stance deepened over the weekend."
This isn't exactly a mystery worthy of Sherlock Holmes. We can all read the newspapers.
But he doesn’t want to say the latter half to avoid the wrath of an administration that has immediately proven to be erratic, vindictive, untrustworthy and cruel.
At the moment, it's an open question how stable things will be going forward.
Because this strategy seems to be in line with what we've been reading ("buffet amassing cash") for the last 5 years at least?
The general public sitting in cash waiting for the dip is a problem because you are potentially missing out on a lot of returns:
* https://ofdollarsanddata.com/even-god-couldnt-beat-dollar-co...
And even if you bought at the top, if you just 'hang on', you'll probably do well:
* https://awealthofcommonsense.com/2014/02/worlds-worst-market...
But if you're losing sleep about things going up 'too much' or the regular ups and downs of stock markets, then not being 100% equities is generally fine if it helps you keep the course and not cash out. Having 10 or 20 or 40% of your portfolio in bonds (and rebalancing) is reasonable:
* https://investor.vanguard.com/investor-resources-education/e...
In fact, in the 2000s being in bonds and rebalancing would have saved your bacon for returns in the US:
* https://www.forbes.com/sites/investor/2010/12/17/the-lost-de...
Doing this is easy with an 'all-in-one' or target date fund:
* https://www.fidelity.ca/en/investments/solutions-portfolios/...
* https://investor.vanguard.com/investment-products/mutual-fun...
“Despite what some commentators currently view as an extraordinary cash position at Berkshire, the great majority of your money remains in equities,” Buffett wrote in the 2024 annual letter released Saturday. “That preference won’t change.”
Those are weasel words. He doesn't address why his position is changing. He misdirects away from it by saying he loves stocks. Which has no bearing on weather or not you should be increasing or decreasing your position in stocks.
As an example, suppose, BH is selling stocks and amassing more cash than usual in an attempt to shift investment into a new undervalued firm or commodity. Now, they need to research, investigate, double check, build a strategy, build a contingency plan, etc. etc. They cannot reveal this plan publicly before it is complete as that would drive up the price of any potential targets.
Just an example.
Then proceeds doing otherwise anyway.
"We were aided by a predictable large gain in investment income as Treasury Bill yields improved and we substantially increased our holdings of these highly-liquid short-term securities"
https://www.ft.com/content/114a157a-6dd8-4705-9efa-53fbe7688...