The growing cash reserve of Warren Buffett‘s Berkshire Hathaway Inc. BRK could be a sign of potential market trouble in the future.
What Happened: The wealth management giant held a record $157 billion in liquid assets as of Sept. 30, representing 15% of its $1 trillion total assets. This figure equates to 20% of the company’s $783 billion market capitalization as of last Thursday.
“I think he sees trouble next year,” said Lee Munson, president and chief investor of Portfolio Wealth Advisors, reported Business Insider.
“It means be cautious. He doesn’t see any screaming deals.”
In May, Buffett warned of an impending “different climate” in the U.S. economy, predicting profit dips for most of Berkshire’s subsidiaries.
Buffett, a renowned value investor, ensures that Berkshire always maintains at least $30 billion in liquid assets to fulfill its financial obligations. This financial strategy also allows him to capitalize on undervalued assets and strike lucrative deals during challenging economic times.
However, finding compelling deals has become increasingly difficult in recent years due to steadily climbing valuations. Buffett has had to broaden his search globally, as evidenced by his growing stakes in five Japanese trading houses.
This week, it was revealed that Buffett and his team had reduced their significant Chevron stake and exited several long-held positions last quarter while leaving their two largest holdings, Apple Inc. AAPL and Bank of America Corp. BAC, untouched.
Munson suggested that Berkshire is essentially adopting a ‘barbell strategy’ of owning both growth and value stocks. He highlighted Apple as a proxy for the S&P 500 and Bank of America as a value play.
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