Warren Buffett’s doing something curious. Here’s what I think’s going on

Jon Smith flags up something he’s noticed in recent financial updates from Warren Buffett and Berkshire Hathaway and explains his take on it.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Fans of Warren Buffett taking his photo

Image source: The Motley Fool

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Warren Buffett is one of the most respected investors of any generation. As a result, the actions he takes on his portfolio via Berkshire Hathaway (NYSE:BRK.B) attract attention. So over the course of the past year or so, something interesting has been noted from the company updates. Here’s what I think it means and what I can learn.

Big numbers

Put simply, Buffett is hoarding cash like never before. In the latest report, it showed that Berkshire had a cash pile of $277bn. That might sound like a lot of money… because it is! For perspective, the largest holding is currently Apple. The market value of this holding is $87.3bn. The next biggest is American Express with a value of just over $38bn.

Should you invest £1,000 in Berkshire Hathaway right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Berkshire Hathaway made the list?

See the 6 stocks

So the cash holdings massively outstrip the value of any individual stock being held. Interestingly, the market cap of Berkshire Hathaway is $964bn. So the cash being held makes up a decent portion of the overall value of the firm.

Created with Highcharts 11.4.3Berkshire Hathaway PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

Why I think it’s happening

The cash balance hasn’t always been this high, but it has increased rapidly over the past couple of years. I feel this is down to a few reasons. Firstly, Buffett hasn’t made any sizeable new purchases recently. This indicates to me that he can’t find any value stocks that are attractive enough. Sure, there are opportunities in the stock market. For example, there are some great shares with high dividend yields. But Buffett focuses his strategy on buying undervalued stocks that he feels will do well in the long term. So for his specific focus, he can’t find any good ideas.

Another reason why he could be building his cash is due to the potential for a stock market correction. It’s true that across the pond, the stock markets have been flying. For example, the Nasdaq 100 is up 25% in the past year. For an index of large-cap stocks, that’s very impressive. However, it could also indicate that a correction is coming, as investors start to book some profits and reduce their risk. If this happens, Buffett would be well placed to use his dry powder to snap up some shares at a cheaper level.

Being different

I don’t see myself buying Berkshire Hathaway shares any time soon. However, I do always follow what’s going on with the company due to what I can glean about Buffett’s thinking. In this case, my portfolio set-up is a bit different. The main reason I’m not hoarding cash is because I primarily invest in the UK market. As a result, the valuations are a lot more attractive at the moment.

Further, I have a mix of dividend, growth and value ideas in my portfolio. So although I understand why Buffett is growing his cash balance, it’s not overly going to impact my decision-making right now.

Pound coins for sale — 31 pence?

This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

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.

American Express is an advertising partner of The Ascent, a Motley Fool company. Jon Smith has positions in Apple. The Motley Fool UK has recommended Apple. 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.

More on Investing For Beginners

artificial intelligence investing algorithms
Investing Articles

Just opened a Stocks and Shares ISA? Here are 10 stocks to consider buying, according to AI

With the start of a new tax year, Zaven Boyrazian uses ChatGPT to build a Stocks and Shares ISA starter…

Read more »

Middle-aged black male working at home desk
Investing Articles

I’m planning to keep investing with my Stocks & Shares ISA! Here’s why

Royston Wild explains why he plans to keep building his Stocks and Shares ISA despite current turmoil on the stock…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

Is Warren Buffett getting ready for a stock market crash?

Berkshire Hathaway has a record $344bn of cash sitting in the bank right now, signalling that Warren Buffett could be…

Read more »

Investing Articles

How much passive income can an investor get each year from a new £20,000 ISA?

Our writer shows how a £20k investment in an Stocks and Shares ISA could lead to an annual passive income…

Read more »

Investing Articles

Is the US stock market set to crash in April?

Panic about a looming stock market crash is spreading, but what could be the tipping point? And what can investors…

Read more »

Mindful young woman breathing out with closed eyes, calming down in stressful situation, working on computer in modern kitchen.
Investing Articles

As the stock market has a meltdown, I’m listening to billionaire Warren Buffett

Our writer has been following Warren Buffett in recent weeks by repositioning his portfolio to take advantage of the market…

Read more »

Investing Articles

How much would an investor need in an ISA for a £100k passive income?

Zaven Boyrazian breaks down how much investors need to put aside each month to potentially earn a six-figure tax-free passive…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

Could BP’s share price rebound over the next 12 months? These analysts think the answer is ‘yes’!

BPs share price has plummeted over the last year. But City brokers think things are about to turn around, as…

Read more »