Warren Buffett and $122 Billion in Cash

At the end of June it became known that the conglomerate of the legendary “Oracle of Omaha” Warren Buffett, Berkshire Hathaway, is holding $122 billion in cash in the bank. With these funds, the company could increase its stake in Apple, Amazon or Bank of America. However, Buffett still prefers not to invest them, Business Insider notes.

$122 billion represents 60% of Berkshire Hathaway's $208 billion portfolio of public-company stocks. According to Bloomberg, in 32 years of existence, the fund has held a similar or larger amount of cash only in anticipation of the 2008 financial crisis. According to analysts interviewed by the agency, Buffett is now keeping funds in the bank for a reason: many US company shares are overvalued, and a new period of selling is approaching.

This theory is supported by a market-condition indicator such as market capitalization relative to US GDP. This ratio reached 154% in 2017, surpassing the record level of 146% recorded at the peak of the dot-com bubble in 2000. In addition, the indicator is also above 137% - the capitalization-to-GDP ratio seen shortly before the 2008 crisis. Given the stock market's growth over the last 18 months, this percentage (154%) is undoubtedly even higher today, Bloomberg notes.

In his latest letter to Berkshire Hathaway shareholders, Buffett admitted that with cash he would rather buy companies than stocks. But current market valuations are prohibitively high, the investor added, especially for organizations with long-term prospects.

“This disappointing reality means that in 2019 we are likely to again expand our holdings of marketable securities. However, we continue to hope for a major business acquisition,” Buffett emphasized.

Berkshire Hathaway has been accumulating funds in the bank for some time. Analysts say Buffett may simply be waiting for a good deal. However, if history can serve as an example, this businessman's cash hoard may signal an approaching sell-off period in the market.

Source: investing.com

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