Warren Buffett’s $128bn dollar warning to investors

Warren Buffett is one of the most successful investors in the world. He amassed a fortune of more than $100 billion. So, it’s no wonder that many investors are hanging on his every word.

Legendary investors used value investing strategies and this has changed Berkshire Hathaway — the company he led for more than five decades — became 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 — about investors.

A danger

Buffett looks for stocks that are trading below their book or intrinsic value – essentially a value investing strategy. These stocks are definitely easier to find in bear markets.

And while he took very long positions, Buffett sold them when his investments realized their potential. Of course, value investors also tend to sell when the market has peaked.

So, what can we take away from Berkshire Hathaway’s Q4 results?

Well, we can see that between June 30, 2022 and the end of the year, Berkshire Hathaway’s cash, cash equivalents, and treasury securities increased from $105.4bn to $128.7bn.

That’s a considerable increase from $23.3bn. So, if Buffett moves to cash, is this a danger?

Well, it’s always healthy to have cash on hand and Buffett has always said he doesn’t want Berkshire Hathaway to be strapped for cash.

But, to me, it’s a clear sign that Buffett thinks the market has peaked or isn’t delivering the price he’s been looking for in six months.

So, maybe Buffett sees a correction coming. That’s how some investors read the report.

The value of hunting

Buffett invests primarily in US-listed stocks. These are, therefore, mostly American or Chinese companies. As far as I know, Diageo it is the only company owned by Berkshire that is actually British.

It is not a great sign that the most famous investors in the world do not invest in British stocks. But it also means that Buffett’s concerns about the stock market may not be a problem for British investors.

Some investors have suggested that U.S. stocks may have peaked and are therefore headed lower this year. British investor Jeremy Grantham, founder of GMO – an investment management company founded in 1977 – confirmed that the S&P 500 will fall by 16.7% by the end of the year.

Considering the index is actually up 6.5% year to date (down 3% over 12 months), it could be 23.2% if Grantham’s forecast is correct.

Increasing interest rates can be one part of this. After all, higher interest rates encourage savings and the purchase of government debt. It also disincentivises investing in growth because a dollar today becomes even more expensive than a dollar in a year’s time.

As a UK-focused investor, I’m not too concerned. US stocks trade at a considerable premium to their UK counterparts. I still expect UK stocks to rise this year.