Warren Buffett’s huge cash pile marks a warning for stocks

The Berkshire Hathaway investor sits on top of a $189 billion war chest

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Good morning investors!

Two major money events happened this weekend:

  • The Kentucky Derby

  • Berkshire Hathaway’s annual shareholder meeting

Horse betters wagered more than $320 million on Saturday. A speedster named Mystik Dan won the main event by a snout, at roughly 18 to 1 odds.

As it turns out, that’s a paltry amount compared to what Warren Buffett is currently sitting on.

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$189 billion — in cold, hard cash

On Saturday, Warren Buffett presided over the first Berkshire Hathaway annual meeting without Charlie Munger.

Thousands of shareholders and Buffett enthusiasts descended on Omaha to watch the 93-year-old field questions about his business, portfolio, and six-decade friendship with Munger, who passed away in November at 99.

One key detail from the weekend: Berkshire revealed the company’s cash pile hit a record $189 billion at the end of March.

That’s more than double the market cap of Starbucks, and up from about $168 billion one quarter earlier. 

Fielding questions at what’s been dubbed “Woodstock for Capitalists,” Buffett told attendees he expects that war chest to balloon to $200 billion halfway through 2024.

“We’d love to spend it, but we won’t spend it unless we think they’re doing something that has very little risk and can make us a lot of money,” Buffett said. 

It’s not nothing when an investing legend implies good bargains aren’t readily available.

While Buffett indeed still has plenty of capital deployed, keeping that much cash on the sidelines doesn’t exactly resemble a vote of confidence. 

In the first quarter, Berkshire spent $2.7 billion on stocks and sold about $20 billion. 

Buffett added that building up cash holdings seems to be the right move given the economic environment.  

“I don’t think anyone sitting at this table has any idea how to use it effectively, and therefore we don’t use it,” he said Saturday. 

Notably, the conglomerate trimmed its stake in Apple by about 13%. 

Still, Buffett maintained he anticipates the iPhone maker will remain Berkshire’s largest stock holding for the foreseeable future. 

So there seem to be a few reasons Buffett’s hoarding cash: 

  • Lack of appealing acquisition targets

  • Bracing for upcoming macro headwinds 

  • The landscape makes cash look attractive

Some on Wall Street have argued that equity valuations have become too stretched and, in turn, less enticing over recent months. 

Based on his portfolio, Buffett’s outlook seems to fall into that camp.

There’s little sense spending money for the sake of making a transaction, especially if it doesn’t look like a winning bet. 

"We only swing at pitches we like,” Buffett said. “Today things aren’t attractive.”

*At a glance:

Elsewhere:

  • Warren Buffett has big plans for his successor. The investing legend said Saturday that Greg Abel should have the final decision for investments at Berkshire Hathaway — when the time comes. (FT)

  • The economic slowdown is happening. Consumers are pulling back, hiring is slowing, and the services sector is cooling off. Taken together, Fed rate cuts may be back on the table after all. (WSJ)

  • Record immigration is colliding with a housing shortage. In most of the developed world, one of the most dependable drivers of economic growth is looking more and more uncertain. (Bloomberg)

Rapid-fire:

  • Saudi Arabia hiked oil prices for its flagship crude heading to Asia (Bloomberg)

  • China is snapping up gold at a very fast pace (New York Times)

  • Apple remains Buffett’s biggest and riskiest stock investment (WSJ)

  • President Xi Jinping has kicked off his European tour (Bloomberg)

  • A list of the largest yachts owned by tech billionaires from Zuck to Bezos (Business Insider)

Last thing:

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