REUTERS/Rick Wilking
- Warren Buffett's Berkshire Hathaway held a record $157 billion of liquid assets at the last count.
- The cash pile signals Buffett's not finding bargains and expects trouble next year, Lee Munson says.
- Berkshire is betting on growth and value with Apple and Bank of America, the wealth manager says.
Warren Buffett's stack of cash is bigger than ever because he spies problems on the horizon and he's struggling to find bargains, one wealth manager says.
Buffett's Berkshire Hathaway held a record $157 billion in liquid assets like dollars and Treasury bills on September 30. The astonishing sum made up 15% of its $1 trillion of assets at the time, and it's equivalent to 20% of the company's $783 billion market capitalization as of Thursday's close.
"I think he sees trouble next year," Lee Munson, the president and chief investor of Portfolio Wealth Advisors, told Yahoo Finance on Thursday about the significance of Buffett's cash pile. "It means be cautious. He doesn't see any screaming deals."
Buffett struck a dour tone on the US economy in May, warning of a "different climate" versus the rock-bottom interest rates and freewheeling government spending during the pandemic. He predicted that most of Berkshire's subsidiaries would report profit declines this year.
As a value investor, Buffett specializes in buying stocks and businesses at a discount to their actual worth. He's pledged to always have at least $30 billion of liquid assets at Berkshire to ensure the company never fails to meet its financial commitments. Having plenty of dry powder also enables him to pounce on cut-price assets and strike lucrative deals at tough times, as he did during the 2008 financial crisis.
Buffett made his fortune by investing in American companies like Coca-Cola and Kraft Heinz, but as valuations have steadily climbed over the past decade, he's had to expand his search to find compelling deals. For example, he revealed 5% stakes in five Japanese trading houses in August 2020, and has grown those positions to nearly 9% since then.
"Honestly, it's just hard to find good companies at a reasonable valuation," Munson said about Buffett's challenge today. "The fact that he's going to Japan to find things with a PE that's reasonable, I think tells us a lot about this market."
Buffett and his team revealed this week that they pared their huge Chevron stake and exited a bunch of long-held positions last quarter. Yet they didn't touch their two largest holdings, Apple and Bank of America.
Munson said that Berkshire is essentially pursuing a barbell strategy of owning both growth and value stocks. The conglomerate's Apple stake is similar to holding the S&P 500, given the Big Tech stock's outsized influence on the benchmark index, while the Bank of America bet is a cheap, large-cap value play, Munson said.
"I think those are the two winners of those two indexes," Munson said.