Having amassed a net worth of over $80bn from the stock market, Warren Buffett is widely regarded as the greatest investor of all time. So when he makes a move, it’s worth taking note. With that in mind, here’s a look at what Buffett’s doing right now.
Colossal cash pile
Over the weekend, his investment company Berkshire Hathaway released its third-quarter results. One of the most interesting takeaways from the results, in my view, was that Buffett is continuing to build up a large cash pile right now.
According to the latest results, it had a record $128bn in cash and short-term investments at the end of September, up from $122bn at the end of the previous quarter. Make no mistake, that’s a huge amount of cash to have on the sidelines – it’s around six times the amount of cash Buffett had on hand a decade ago. So, what does this colossal cash pile tell us?
Stock market pullback
Well for a start, the monstrous cash pile indicates the ‘Oracle of Omaha’ is not seeing many buying opportunities at the moment. Buffett has said for a while he’s looking to make a major ‘elephant-sized’ acquisition for Berkshire, but the growing cash pile suggests he’s not seeing anything that offers much value right now.
Secondly, to my mind, it suggests Buffett is anticipating a market correction. We all know that he likes to be ‘greedy when others are fearful,’ and this huge cash pile indicates to me he’s preparing for a pullback. $128bn would certainly give him some serious buying power if global stock markets were to decline in the near future.
Personally, I think this is a very smart move from Buffett. The reason is, I’m seeing a number of warning signs that suggest a market correction may not be far off. Just look at some of these red flags:
Sales by company insiders in the US are running at their highest level since the tech bubble, according to data from Smart Insider
Confidence among CEOs recently fell to its lowest level in a decade, according to the Conference Board Measure of CEO Confidence survey
The International Monetary Fund recently advised that the global economy is now in a “synchronised slowdown”
The UN recently warned a 2020 recession is now a “clear and present danger”
Of course, no one knows for sure how markets will perform in the near term. However, in this kind of environment, where there are a number of alarm bells going off, having some cash on the sidelines is a sensible idea, in my opinion.
If the stock market was to experience a pullback in the near future, having some cash available could allow you to capitalise while others are panicking, and buy a selection of high-quality stocks at attractive prices.
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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.