"Be fearful when others are greedy, and be greedy when others are fearful." (Warren Buffett)

"Be fearful when others are greedy,
and be greedy when others are fearful."

(Warren Buffett)

How does Warren Buffett, the person who said these words, view the stock market right now? Actions speak louder than words, so let's take a look at Buffett's actions.

Source: Financial Times (www.ft.com)

You may have read the news that Buffett halved his Apple stock holdings in the second quarter of 2024. In fact, his sales began in the first quarter, with Berkshire Hathaway, which Buffett manages, selling roughly 510 million Apple shares, or around 56% of its holdings. Besides Apple, he also bought and sold other stocks, but what’s important is the net change. As of the end of Q1 2024, Berkshire Hathaway held $189 billion in cash, and by the end of Q2 2024, that number had increased to $277 billion. While the sale of Apple shares is notable, what’s more interesting is that he's holding onto the cash (to be precise, “cash and short-term U.S. Treasuries”).

The yellow arrow in the graph is one I added, and you can clearly see how the cash balance shot up vertically from the middle of 2022. This increase isn’t due to a sudden rise in Berkshire's total assets; instead, Berkshire significantly increased its cash ratio.

At the end of June 2024, Berkshire had a total of $316.9 billion in stock investments and $276.9 billion in cash and cash equivalents, meaning that cash makes up about 47% of its investment assets - a very high level for Warren Buffett, who typically avoids holding large amounts of cash. Of course, Berkshire also owns several non-public companies, such as GEICO, BNSF Railway, and See's Candies, so the actual proportion of stock investments is higher. However, since non-public companies aren’t evaluated, it’s more appropriate to compare the changes in the cash ratio for the investment assets excluding those for consistency. Based on that measure, Berkshire appears to be holding its highest cash ratio ever (or close to it). Does Buffett think others are being greedy right now, making it time for us to be fearful?

Buffett doesn’t favor technical analysis, but he endorses one indicator to measure whether the overall stock market is undervalued, fairly valued, or inflated—a ratio that divides a country’s total stock market capitalization by its Gross Domestic Product (GDP). This is now commonly known as the Buffett Indicator. For those who want to learn more about the Buffett Indicator and whether it suggests the current market is in a bubble, you can check this article: Buffett Indicator: Is the U.S. Stock Market in a Bubble?

Thanks for reading. Wish you grow rich slowly and surely!

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