Warren Buffett is doing this for the first time in 20 years. Should investors be worried?

Warren Buffett follows a routine. He sleeps a lot every night. He wakes up at the same time every morning. He drinks a can of Coca cola to start the day. He reads voraciously, including newspapers and company financial reports.

But Buffett is now doing something for the first time in 20 years. And that could be worrying for many investors.

Accumulation of cash

It’s not unusual for Buffett to keep a large amount of cash on hand Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B). The Company’s policy is to maintain at least $30 billion in cash, cash equivalents and US Treasuries.

However, Buffett is accumulating money like never before. Berkshire’s cash position, including cash equivalents and short-term investments, totaled nearly $277 billion as of June 30. This is the highest level so far.

Of course, Berkshire Hathaway is generating more revenue than it has in the past. He has more money to make. Inflation has also eroded the purchasing power of the US dollar, so a larger cash position makes some sense.

But there’s another sign that Buffett’s current level of cash hoarding is unusual. Berkshire’s cash position has grown more than 65% so far in 2024. It has grown more than 30% in 2023. The last time the conglomerate’s cash, cash equivalents and US Treasuries rose 30% or more in consecutive years was been in 2003 and 2004.

Is it time to worry?

It’s not hard to see why Buffett keeps so much money. He prefers to be invested more in stocks, but will only buy stocks when they are attractively valued. That Buffett has raised Berkshire’s cash position to such a high level reflects his belief that most stocks are not attractively valued.

Buffett is almost certainly right that many stocks trade at a premium. One of his favorite valuation metrics, known as the Buffett ratio — the ratio of the total value of the U.S. stock market divided by GDP — is near an all-time high. In 2001, Buffett wrote in a wealth essay, “(N)o two years ago, the ratio rose to an unprecedented level. That should have been a very strong warning sign.”

Should investors be worried? I think that is too strong a word to use. Buffett’s growth of Berkshire’s cash position by 30% or more in consecutive years two decades ago did not lead to a short-term market collapse. The S&P 500 increased over the next two years.

Also, the Buffett Indicator is arguably less useful now than it was in the past, with technological innovations making it more difficult to accurately gauge what their valuations should be. We should also note that Buffett is still buying some stocks in the current environment.

The story continues

Buffett’s example follows

I think the best thing investors can do right now is follow Buffett’s lead. When you find stocks of well-run companies that are available at a reasonable price, buy them. Build a solid cash position if you don’t already have one. Having plenty of dry powder on hand will allow you to buy stocks at a discount when the stock market inevitably pulls back.

Most importantly, maintain a long-term perspective. Buffett’s success is largely due to his mindset. Long-term thinking is a part of his routine that every investor should adopt.

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Keith Speights has positions in Berkshire Hathaway. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.

Warren Buffett is doing this for the first time in 20 years. Should investors be worried? was originally published by The Motley Fool