“Warren Buffett’s Berkshire Hathaway sells stocks as cash pile swells to record levels”, headlined the Financial Times last week.
A Bloomberg headline – “Buffett’s cash hits record $157 billion [€147 billion] amid scarce deals” – was similarly ominous. If Buffett can’t find stocks to buy, does this imply markets are overvalued?
Maybe they are, but investors shouldn’t fret over Berkshire’s record cash pile (disclosure: I own shares in Berkshire). As the value of Berkshire’s portfolio grows over time, its cash holdings inevitably follow the same growth path.
In 2013, a Bloomberg headline noted Berkshire’s cash had hit a “record” $49.1 billion. That wasn’t a warning signal – anyone who invested in the S&P 500 would have more than tripled their money.
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Buffett was indeed a net seller of stocks in the third quarter, but sensationalist coverage – Business Insider used words like “astounding” and “smashing” the old cash record, and wrote of how Buffett “hunts in vain for bargains” – obscures the fact it makes little sense to focus on the dollar value of Buffett’s cash holdings.
Instead, investors should note that cash and cash equivalents currently account for about 15 per cent of Berkshire’s total assets – right in line with its long-term average.
