Investors can often benefit from tracking the recent moves and decisions made by the biggest names in the market, especially if they can reverse engineer some of the reasoning behind those decisions. With that in mind, today’s analysis won’t be about which bank or hedge fund bought which stock, but rather about a prominent investor who decided to ride out this bull market.
Berkshire Hathaway today
As of 01/10/2025 15:58 Eastern
- 52 week range
- $357.98
▼
$491.67
- P/E ratio
- 8.94
- Target price
- $457.50
Warren Buffett is known as the “Oracle of Omaha” and one of the most respected investors in the industry. Among the many indicators derived from his stock market performance, this one is perhaps one of the most straightforward, and it concerns how much money is kept in his holding company. Berkshire Hathaway Inc. New York Stock Exchange: BRK.B.
Typically, Berkshire’s cash balances fluctuate with the business cycle. This means that the company will hold a larger percentage of cash on its balance sheet when there are no attractive buying opportunities in the market, and very little cash when there appears to be a large number of potential deals in the market, as the company will distribute the money it invests in these purchases.
Reason 1: Buffett Expects a Stable Market
Studying Buffett’s past behavior can help investors understand the nature of his decisions today, which is where a 1999 interview with CNN Business can be helpful. In that interview, Buffett said he refrains from investing in the market because of obscene valuations.
While many criticized Buffett for missing out on the dot-com bubble, Berkshire shareholders thanked him years later when he plowed all that liquid cash into the incredible deals that resulted from the selloff that followed. That being said, the CNN interview is not much different from where the markets are today.
According to the Buffett indicator, which is calculated by dividing the value of the stock market by US GDP, SPDR S&P 500 ETF Trust NYSEARCA: SPY is at the most expensive level in history. However, Buffett’s reasoning does not end there.
He also mentioned that with corporate earnings accounting for up to 6% of this GDP, earnings per share cannot grow fast enough to outpace the underlying inflation rate without causing another market bubble. For this reason, it moved into cash and remained in cash until 2004.
Today, Berkshire holds just over $325 billion in cash, its highest level since then. However, the total monetary value is not the most important indicator here; what matters is the percentage of net assets that dollar value represents. As of January 2025, that $325 billion represents up to 25% of Berkshire’s assets, which is unusual compared to the average range of 14% to 16%.
With corporate earnings now accounting for more than 12% of the country’s GDP, Buffett has even more reason to expect the market to stabilize as he did then, justifying his record-high cash position.
Reason 2: there is nothing to buy except bonds
In addition to cash, Buffett now holds more capital in bonds than the Federal Reserve itself. Buffett is known to do this when he thinks there won’t be significant stock buying activity for an extended period of time.
He’s not alone in this view: The latest 2025 macroeconomic forecast from Goldman Sachs suggests there is some downside risk to the S&P, and they also recommend buying bonds and oil as a hedge. Right here iShares 20+ Year Treasury Bond ETF NASDAQ: TLT and energy stocks will come into play for investors.
And also why Buffett now owns so much capital in both bonds and oil companies of a certain name. Over the past few quarters, Buffett has amassed a stake of up to 29% in Occidental Petroleum Co. New York Stock Exchange: OXYTherefore, more and more market participants are figuring out where the best opportunities lie in 2025.
Even with Buffett’s cash balance, stock market valuations and other factors serving as warnings, investors shouldn’t completely abandon the market like he did. They should remember that Buffett has a lot of capital to work with, so restrictions and mandates abound.
However, other stocks could turn 2025 into a better year. These are the ones that Buffett may not be able to buy due to size.but investors can take advantage of them Today.
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