Warren Buffett Cash Indicator Reveals an Overvalued Market

Warren Buffett is an investing legend for good reason…

If you invested $100 with Buffett in 1964, it’d now be worth $2.4 million.

This massive return is why millions of investors follow his every move.

You can track his stocks by watching his company Berkshire Hathaway. It’s required to report its holdings four times a year through 13F filings. You can find them listed on the SEC website.

Berkshire Hathaway also reports other key financial data. You can learn a lot by following Warren Buffett’s financial moves… and one simple metric stands out over the last 10 years.

Follow Warren Buffett’s Cash

Buffett’s strategy boils down to value investing and compounding returns. He also has an incredible level of patience.

Berkshire Hathaway is holding $116 billion in cash that’s earning little-to-nothing in interest. This return drops closer to zero after adjusting for inflation.

Over the last 10 years, Berkshire’s cash position has more than tripled…

Warren Buffett Cash Indicator

The 10-year bull market makes it hard for Buffett to find worthwhile investments. Yet, he’s willing to wait for better deals.

The investing legend knows that losing the battle for yield today can result in winning the long game. Missing a few years of returns is better than buying into overvalued stocks.

Over 53 years, Berkshire Hathaway has underperformed the S&P 500 17 times and some of the lower returns were back-to-back.

The market is a voting machine in the short run and a weighing machine long term.

The Warren Buffett cash indicator is one of many pointing to an overvalued market. The popular PE ratio sits at 24 and that’s well above the average of 16.

When the PE ratio is 24 – based on 50+ years of data – the S&P has returned a measly 4% each year for the following ten years. That’s a terrible risk adjusted return.

Buffett Upgrades his Elephant Gun

Many people believe that Apple has the most cash stashed away… but Berkshire Hathaway takes the cake (when excluding big banks).

Warren Buffett is ready for a bear market. In his words…

We’re prepared. Our elephant gun has been reloaded, and my trigger finger is itchy.

This quote is from his 2010 shareholder letter and at that time, his company only had $38 billion in cash. Since, it has skyrocketed to $116 billion and his elephant gun has morphed into a mammoth gun.

Berkshire Hathaway can’t effectively deploy all of its cash in small businesses. It would take too much time to analyze every $50 million deal that comes along. Instead, Buffett focuses on finding value in mammoth companies.

Warren Buffett’s cash is a clear indicator. Value investing is a challenge in this 10-year bull market. Some sectors – consumer staples – are better than others… but waiting for better deals to come along is crucial. Patience is a common theme among some of the world’s best investors.

I’ll leave you with a quote from the commodity legend Jim Rogers…

I just wait until there is money lying in the corner, and all I have to do is go over there and pick it up. I do nothing in the meantime.

Invest mindfully,

Brian Kehm

Sharing is caring...

Leave a Reply