Why Warren Buffet is sitting on a record amount of cash

Guys, on this quick video, I want to talk about why Warren Buffett is sitting on so much cash. He had a famous saying where he said, we only swing at pitches we like. I came across this interesting article that I want to share with you guys that will probably explain to us why Warren Buffett is sitting on so much cash right now. I'm going to skip down in the article just a little bit because I don't want to read all the filler stuff. Recently, Buffett has been a somewhat aggressive seller of the stock Bank of America. Between July 17th and August 30th, Berkshire's stake in Bank of America has declined by about 150 million shares, which equates to roughly $5.4 billion. That's a huge amount of money that Warren Buffett has sort of got off the books by getting rid of some of Bank of America. It says this $5.4 billion in selling activity is a pretty clear warning to Wall Street and investors. Well, why is it a warning to us? Because this is probably the Michael Jordan of investing. In the last 50 to 60 years, this is the Michael Jordan of investing, and he is sitting on stacks and stacks and stacks of cash. To begin with, there's not a sector Buffett loves to invest in more than the financial sector banks, and arguably not a financial stock that he's favored more over the last seven years than BOA, Bank of America. Bank of America's interest rate sensitivity, coupled with CEO Brian Monahan's desire to reward his company's shareholders with a robust capital return program, dividends and share buybacks, has made Buffett a happy camper in the last seven years. So if Buffett was a happy camper with Bank of America shares, why in the world do we see Buffett just unloading so much Bank of America and sitting on so much cash right now? The fact that Buffett has dumped nearly 15% of his company's stake in Bank of America in a span of just over six weeks suggests clear worry about the U.S. economy and the stock market. So perhaps what this article is saying, and what I believe, is that Buffett is seeing something happening in the market that he's not real fond of. So he wants to keep his money in cash as opposed to the market. It says like pretty much all bank stocks, BOA, Bank of America is cyclical. The other issue is it puts Berkshire Hathaway on track for its eighth consecutive quarter of selling more securities than it actually purchased. What happens if you sell more securities than you actually purchase? You end up sitting on a whole bunch of cash, right? And that's what we have happening. It says collectively, Warren Buffett has overseen $131.6 billion more in securities sold than purchased between October of 2022 and June of 2024. So you're talking about two years, and he's accumulated and gathered $131.6 billion in the amount of securities that he sold and the amount that he's brought back, meaning he has to hold that money somewhere, and he's holding it in cash. The logical explanation for this is that stocks are historically pricey, and Buffett wants no part of the casino. In other words, there's a very good chance that what he's seeing and why he's holding so much cash is that the stock market's overpriced. Now how do we know the stock market is probably overpriced? Well, there's several indicators out there that are telling us that stocks are ballooning a little bit. They're overvalued at this point. This article goes on to say that the stock market is historically pricey. To reiterate, Warren Buffett suggests investors not bet on against America. So you'll never see Buffett or his team purchase any put options or short-sale securities. Nevertheless, being a long-term optimist and expecting the U.S. economy to grow over time doesn't mean that Buffett is going to pay an exorbitant premium for stocks. He ain't paying a whole bunch for stocks when he shouldn't be paying that. If a fair price can be had for a wonderful company, companies, Buffett will sit on his hands for as long as necessary until a fair price is reached. So based on the S&P 500's PE ratio, what they call the Shiller Price-to-Earnings Ratio, stocks have only been collectively pricier during two other bull markets over the last 153 years. In other words, we rarely see prices overvalued to the point that they're overvalued according to the Shiller PE ratio. So why is that important? The traditional PE ratio examines a company's trailing 12-months EPS relative to its price share. That's what PE ratio is, right? The S&P 500's Shiller PE takes into account the 10 years of inflation-adjusted EPS, which is always good. The advantage of that is it smooths out the impact of one-off events and shocks, like the pandemic or something crazy happening, right? So when they backtest this whole thing to January of 1871, what is that, 153 years, the S&P 500's Shiller PE ratio has changed from a low of 4.78 in December 1920 to a peak of $44.19 during the dot-com boom at the end of 1999. But as of the closing bail this past week, the Shiller PE ratio for the S&P 500 stood at 35.38. That is high. Now why is that so high, right? And the problem with that being high is the higher the PE ratio of a regular stock or of the S&P 500, the higher the PE ratio, the more out of balance and overvalued a stock is or an index is, like the S&P 500. So it says this 35.38 is more than double its 153-year average of 17.16. So the PE ratios are larger now. Now one of the reasons for that, and I don't know if this article talks about it, but one of the reasons is because the S&P 500 is very top-heavy with tech stocks. And as we know, tech stocks are very cyclical and they tend to run a much higher PE ratio than other sectors. When you're in the tech sector, your PE ratio is going to be higher. And so because of that, and we know that the S&P 500 is tech-heavy, we also see sort of a balloon in the actual PE ratio for the overall S&P 500. But also we know that it goes in cycles too, the tech space. So we'll see a fluctuation. I think if we checked this six months ago, the Shiller PE ratio for the S&P 500 was probably $28, $29, or $28, $29. Now it's over 35. In other words, the article goes on to say, it's just a matter of time before investment euphoria fades and traditional valuation metrics come back into focus. Based on what history tells us, this will occur sooner than later. In other words, there's a market correction coming up. Warren Buffett knows this, and over the last year and a half to two years, he's been sitting on cash because of it. Buffett's best buys often occurred during periods of panic. Selling almost $132 billion more in securities than had been purchased since the start of October 2022 has increased Berkshire Hathaway's cash pile. This includes cash and cash equivalents in U.S. treasuries or bonds to an all-time high of $276.9 billion. Chances are good that this cash hoard will grow even more in the current quarter, given the persistent selling we've witnessed with the shares of Bank of America. So while this $5.4 billion warning is a clear indication from Buffett that stock market and our economic turbulence is coming up unexpected, it's precisely what Buffett hopes for with such a massive treasure chest at his disposal. In other words, Warren Buffett is a true, true investor. True and true. Again, he's the Michael Jordan of this whole thing we're doing, right? So he's saying, okay, for the next year and a half, October 2022 until now, I'm going to be putting money aside, putting money aside, selling off and holding on the money, holding on the cash so that I can turn around. And when everything hits the bottom, guess what Warren Buffett does? When everything hits the bottom like a true investor and everybody's panicking because the stock market has burst and the bubble went down and all stocks are down, he's swooping right up in there to take over, to take what he wants at a discount. It says one virtual guarantee is that Warren Buffett will continue to purchase shares of his favorite stock, Berkshire Hathaway, right? But the bigger story is what price dislocation will attract Buffett next. Following the financial crisis, Buffett invested $5 billion into Bank of America, America's preferred stock, right? And it goes on to talk about how periods of emotion-driven selling while brief have historically been Warren Buffett's time to shine. With stocks at one of their priciest valuations in history right now, Buffett's selling activity foreshadows both the peril and the promise of what's to come. So in other words, this article is saying the reason he's sitting on cash is because he's chilling. He's waiting on an opportunity to buy at a discount when everybody starts panicking. Now listen, if you ever want to know what stocks or what specific investments that a Warren Buffett has or any other super investor, guys, there's a website called datarama.com, right? Datarama.com, which is where you can go to get all of the summary of the 13F filings from all the super investors. Now, super investors are people that have an AUM, assets under management of more than $100 million. All those people in America are required by the SEC to actually report what they bought and sold on a form 13F every quarter. And so all the super investors have their 13F filings summarized on a site called Datarama. There's some other sites too, but I like to use Datarama. And you can see that Warren Buffett, this is the period of quarter two of 2024, which this is always a quarter behind, right? But you can see all of his holdings are right here and it has the recent activity, the amount of shares reported, price, share price, the value, the current price and so forth. 52 week low and 52 week high is all right there also. So these are all the holdings that Warren Buffett has and it gives you, it lines them up in percentage of portfolio. 30% of Warren's Buffett portfolio is Apple, almost 15% is Bank of America, although he sold off a big ton recently, like we said, right? But you can go down the list and see exactly what each of these super investors are invested in. And again, it's on a site called Datarama. So when you get a chance, guys, you might want to go over there and check that out. Let me actually go back here and show you all the different investors that are there. Here's the super investor portfolio updates. It also on this website kind of gives you a summary of the super investor portfolio stats, the top 10 most owned stocks, the top 10 stocks by percentage that's owned and also gives you the top 10 buys last quarter. So over here on the left hand side at datarama.com, you can see the list, the name of all these people, right? Bill Melinda Gates is there. Alex Reapers is there. Christopher Bloomster. There's a lot of folks in here. And these are your super investors who are managing over $100 million in assets, right? So if you ever want to know, just go to datarama.com and see what they're actually buying. So this is what happens, guys. When you see a super investor sitting on a whole bunch of cash, it's for reasons, whether it's economic uncertainty, whether it's they're waiting for market corrections to happen where they can go in and swoop in and buy stocks at a discount, whether they're waiting on some more attractive investment opportunities, whether they're getting more in cash in terms of interest rates or fixed assets, whatever it may be. Maybe they're preparing for some type of acquisitions. But overall, this is what happens when you see a super investor sitting on loads and loads of cash. Overall, for Warren Buffett, his cash accumulation is likely reflecting his cautiousness on what he believes could be an overpriced stock market at this time. And he's ready to probably deploy some capital out there when he sees opportunities that present themselves here shortly. So I just want to share this quick video with you guys to say, hey, this is why Warren Buffett is probably sitting on so much cash and why he says, hey, listen, we only swing at the pitches we like and they hold. And what he does is he holds his cash until he sees something he likes and he goes for it. All right. You got anything out of this quick video, guys? Do me a favor. Hit that like button below. Drop me a comment below and let me know what you think about this video. Also, let me know. Let me know what you think about Warren Buffett. Why is he sitting on so much cash? In your opinion? Hey, the best person who's going to take care of the old you is the young you guys. Take good care of yourself and take care of other people. Until the next video. Peace.