Is Warren Buffett warning us that a stock market crash is coming?

Has Warren Buffett just admitted being bearish on his own company, Berkshire Hathaway, and the stock market in general?

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Warren Buffett at a Berkshire Hathaway AGM

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Billionaire investor Warren Buffett “is as bearish as he ever gets”.

That’s the opinion of Bill Smead, the chief investment officer at Smead Capital Management.

Smead’s been a long-term shareholder of Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) – the Buffett-led investment holding company — and he attended the recent annual shareholder meeting.

In the first quarter of the year, Berkshire Hathaway’s cash balance ballooned to $189m.

The bloated cash-pile on the balance sheet is the main thrust of Smead’s argument. If there was a deal to do, surely, Buffett would do it for Berkshire Hathaway.

A cash tsunami

One of the great things about the company is the torrent of incoming spare cash.

That happy situation arises because of all the shrewd past investments Buffett has made on behalf of the company. But it does present the directors with a problem – what on earth is the best way to allocate the money?

Buffett’s history shows he’s always preferred ploughing the spare capital back into investments. Within the Berkshire Hathaway portfolio, that means stocks – like The Coca-Cola Company — or businesses owned outright, such as freight railroad giant Burlington Northern Santa Fe.

However, it’s clear he always seeks a good-value deal. If business and stock valuations are too high, Buffett has shown in the past that he’s happy to sit on his hands and wait for better conditions.

For example, we saw him make some fairly big investments for the company in the years from 2008 to 2011 after the financial crisis in the noughties.

Smead thinks Buffett is waiting for the stock market to plunge again in a big way before investing Berkshire Hathaway’s money — when there may be better valuations on offer.

But I don’t think general stock market overvaluation is the main challenge for Berkshire Hathaway.

Where can the company invest?

In the recent annual letter to shareholders for 2023, Buffett said it’s become much more difficult to find stocks and businesses that meet the firm’s investment criteria. Why? Because of the sheer size of Berkshire Hathaway.

I reckon there are decent potential investments around, but none large enough to move the company’s performance dial.

“All in all,” Buffett said, “we have no possibility of eye-popping performance”.

That’s quite a statement and it means two things, to me.

Firstly, Berkshire Hathaway stock itself may not outperform for its shareholders in the future, despite past glories.

Secondly, Buffett may not be as bearish about the stock market in general as feared.

Meanwhile, economies are recovering after a tough few years. So, unless we see a major unexpected economic shock, it seems unlikely a full-scale stock market crash is imminent.

For the investor with smaller funds to deploy, there’s likely to be plenty of opportunities in stocks and shares right now. So, I’m working hard to find some of them.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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