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Warren Buffett is one of the most successful investors in the world. He has accumulated a fortune of more than 100,000 million dollars. Therefore, it is not surprising that many investors are hanging on his every word.
The legendary investor uses a value investing strategy and this has transformed Berkshire Hathaway — a company he has led for more than five decades — at one of the most valuable organizations in the world.
But there’s something about Berkshire Hathaway’s fourth-quarter and full-year operating results, released in late February, that has investors worried.
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Buffett looks for stocks that are trading below their book or intrinsic value; that is essentially a value investing strategy. These stocks are certainly easier to find in bear markets.
And although he takes very long positions, Buffett sells when his investments have realized their potential. Naturally, value investors also tend to sell when the market is at its peak.
So what can we take away from Berkshire Hathaway’s fourth-quarter results?
Well, we can see that between June 30, 2022, and the end of the year, Berkshire Hathaway’s cash, cash equivalents, and treasury values grew from $105.4 billion to $128.7 billion.
That’s a sizeable increase of $23.3 billion. So if Buffett is moving towards cash, is this a warning?
Well, it’s always healthy to have cash on hand, and Buffett has always said he doesn’t want Berkshire Hathaway to run out of money.
However, to me, this is a clear sign that Buffett either thought the market was topping out or didn’t offer him the value he was looking for over the six months.
So maybe Buffett sees a correction coming. That is definitely how some investors are reading the report.
hunting value
Buffett invests primarily in US-listed stocks. These are therefore predominantly US or Chinese companies. As far as I know, Diageo it is the only Berkshire-owned company that is truly British.
It’s not a great sign that the world’s most famous investor doesn’t invest in British stocks. But it also means that Buffett’s potential concerns about the stock market are unlikely to be a problem for UK investors.
Several investors have suggested that US stocks may have peaked and will therefore push lower this year. British investor Jeremy Grantham, co-founder of GMO, an investment management firm established in 1977, says the S&P 500 will fall 16.7% by the end of the year.
Considering the index is up 6.5% year to date (down 3% in 12 months), it could fall 23.2% if Grantham’s forecasts are correct.
Rising interest rates may be a part of this. After all, higher interest rates encourage savings and the purchase of public debt. It also discourages growth investment because a dollar today becomes even more valuable than a dollar a year from now.
As a UK focused investor I am not overly concerned. US stocks trade at sizeable premiums to their UK counterparts. I keep expecting UK stocks to rise this year.
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