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Warren Buffett is one of the most respected investors of any generation. As a result, the stocks he holds in his portfolio across Berkshire Hathaway (NYSE:BRK.B) attracts attention. That's why, over the past year or so, there's been something interesting to notice in the company's updates. Here's what I think it means and what I can learn from it.
Big numbers
Simply put, Buffett is hoarding cash like never before. In the last report, it was shown that Berkshire had a cash pile of $277 billion. That may seem like a lot of money… because it is! For perspective, the largest current holding is AppleThe market value of this stake is $87.3 billion. The next largest is American Express worth just over $38 billion.
So cash holdings vastly exceed the value of each individual share owned. Interestingly, Berkshire Hathaway's market capitalization is $964 billion, so cash held makes up a sizable portion of the company's total value.
Why do I think this is happening?
The cash balance hasn't always been this high, but it has been increasing rapidly over the past two years. I think there are several reasons for this. First, Buffett hasn't made any significant new purchases recently. This tells 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 stocks with high dividend yields. But Buffett focuses his strategy on buying undervalued stocks that he thinks will perform well over the long term. So for his specific approach, he can't find any good ideas.
Another reason you might be hoarding cash is the possibility of a stock market correction. It's true that across the pond, stock markets have been on the up. For example, the Nasdaq 100 The index is up 25% over the past year. For a large-cap stock index, that's pretty impressive. However, it could also signal that a correction is coming, as investors start to take some profits and reduce their risk. If this happens, Buffett would be in a good position to use his cash to buy some shares at a lower price.
Be different
I don't see myself buying Berkshire Hathaway shares in the near future. However, I always follow what's going on with the company because of what I can glean about Buffett's thinking. In this case, my portfolio setup is a little different. The main reason I'm not hoarding cash is because I'm mostly invested in the UK market. As a result, valuations are much more attractive at the moment.
I also have a mix of dividends, growth and value in my portfolio, so while I understand why Buffett is increasing his cash balance, it's not going to impact my decision making too much at this point.
