Warren Buffett bets 300 billion dollars. Is he missing out big time?

Warren Buffett’s investment strategy over the past year is a mystery in the capital market. For almost a year now, his holding company, Berkshire Hathaway accumulates cash in almost unimaginable volumes and mainly realizes shares. At the end of the second quarter of this year, Berkshire’s coffers had cash balances amounting to no less than 277 billion dollars, compared to 168 billion dollars “only” at the end of 2023. At the end of the current quarter, which ends next week, this amount is expected to increase even more, to 300 An estimated billion dollars.

Berkshire Hathaway continues to exercise shares in its outstanding holdings, and at the same time, reduces the volumes of its own purchase of shares (Buy Back). Barron’s noted that already today, Berkshire Hathaway is the company with the largest cash register in the US, much more than Big Tech companies such as Apple or Google.

Berkshire Hathaway’s most notable sale in recent quarters has been in Apple shares – its main holding which Buffett likes to call “the diamond of Berkshire”. It sold about half of its holding in Apple, for sums estimated in many tens of billions of dollars, which of course contributed to the growth of its mountain of cash. At the same time, Berkshire Hathaway also realizes Bank of America shares, and just this week it reported the sale of over 21.5 million Bank of America shares for approximately $863 million. In doing so, the trend of the last few weeks of redemptions in the bank’s shares, which amounted to billions of dollars, continued.

The market wonders what exactly Warren Buffett and his people at Berkshire Hathaway see, and why they prefer to accumulate cash (and investments in bonds) at the expense of finding investment opportunities in the capital market. Earlier this year, at Berkshire Hathaway’s annual shareholder meeting, Buffett was asked about the company’s cash allocation policy, and what he intended to do with it. He replied that “I don’t think anyone sitting around this table has any idea how to use this money effectively, that’s why we don’t use it. We only operate in the field we like.” He then added, “It’s not that I’m on a hunger strike or anything like that, just unattractive things (shares in the market) and there are ways it can change. We’ll see if things change.” In fact, Buffett admitted, the company prefers to receive a return on the holding of US government bonds, until things change and some opportunity is found in the market.

The Berkshire Hathaway stock itself is probably not considered a sufficient opportunity for the company either, and in the second quarter the volume of own purchases decreased significantly and amounted to approximately $345 million, compared to approximately $2.6 billion in the first quarter of the year.

Meanwhile, the US market continues to rise, and Buffett may be missing out on returns he could have achieved if he had allocated some of the cash to market investments. For example, the businessman and investor Samir Arora of Helios Capital recently estimated that Buffett’s sitting on the fence deprived him of potential profits of about 60 billion dollars. He calculated the amount on the basis of an increase of about 50% in the American market in the last two years, and on the basis of Berkshire Hathaway’s holdings in government bonds that yield a yield of around 5% per year.

Therefore, the question arises whether Buffett knows or recognizes something that other investors in the market do not recognize. Recently, an investor named Bill Smid, who imitates Buffett’s investment strategy, said that Berkshire Hathaway’s sales of its most prominent holdings, Apple and Bank of America, are actually evidence that Buffett is preparing for a market crash. According to him, there are many similarities to the actions taken by Buffett in 1999, at the height of the dot.com bubble, when he warned the market that the gains would not last forever. However, other investors believe that the divestments in Apple and Bank of America come solely to balance Buffett’s investment portfolio, after those two investments took too large shares of the portfolio. Let’s recall that in May, Berkshire Hathaway revealed to the market the identity of its new investment, which had been kept secret for several quarters. It was the insurance company Chubb, in which Berkshire acquired a stake worth several billion dollars.

But if Berkshire Hathaway’s moves signal expectations of a fall in the market and assuming those expectations are correct, Buffett’s bet will turn out to be an almost genius move. Berkshire will be able to enjoy good buying opportunities at affordable prices.