Warren Buffett’s increasing cash reserves at Berkshire Hathaway have drawn significant attention from market watchers. In his latest annual letter—eagerly awaited each year by many investors for its sage wisdom—Buffett addressed the topic directly:
“Despite what some commentators currently view as an extraordinary cash position at Berkshire, the great majority of your money remains in equities. That preference won’t change.”
So, What’s Happening?
From a strategic portfolio management perspective, Berkshire’s growing cash position isn’t surprising. Here’s why:
Rebalancing — Berkshire’s cash reserves grew significantly last year, largely due to profit-taking in a buoyant stock market. Notably, Buffett trimmed Berkshire’s holdings in Apple—its largest common stock position both before and after the trim—at a time when technology stocks were driving market gains.1 He also reduced the company’s stake in Bank of America when U.S. financials were performing well.
Beyond simply following the principle of “buy low and sell high,” this move highlights the importance of portfolio rebalancing. If the value of one stock has risen so significantly that it dominates your holdings, it may be an opportune time to consider selling to restore balance. This principle also applies to asset allocation, ensuring the right mix of risk and expected return to achieve long-term goals.
Selectivity — With the bull market of recent years pushing markets to record highs, many stocks have appeared overvalued by historical standards. Buffett acknowledged this challenge: “…very infrequently we find ourselves knee-deep in opportunities.” His classic value-investing approach—focused on buying quality companies at attractive prices—has made it more difficult to deploy capital. However, this hasn’t stopped him entirely. In Q4 2024, Berkshire did add to five existing publicly-traded equity positions and initiated a new stake in Constellation Brands after its share price pulled back.2
In bull markets, many stocks perform well regardless of their fundamentals. But as we enter a period of slower growth and rising geopolitical uncertainty, thoughtful security selection becomes increasingly critical.
Other Factors: No Dividends, No Buybacks—For Now
Buffett has long chosen to deploy Berkshire’s earnings into new investments rather than pay dividends, “thereby electing to reinvest rather than consume,” taking advantage of the “magic of long-term compounding.” This strategy has contributed to Berkshire’s growth, including a market capitalization that surpassed a trillion dollars in 2024.
Berkshire has also halted share buybacks for two consecutive quarters. This suggests Buffett does not currently see Berkshire’s stock as undervalued—a notable stance from someone known for buying back shares when they appear attractively priced.
During Uncertain Times: Revisiting Buffett’s Enduring Wisdom
Given the current economic and market backdrop, it’s worth repeating that long-term investing requires patience, discipline and perseverance to navigate difficult times. Periods of volatility and economic uncertainty—as well as new challenges—are inevitable, but history reminds us that we will get through these periods and emerge stronger over the long term.
During difficult times, it may be tempting to react to short-term uncertainty, but Buffett’s approach reminds us that resilience and a longer-term mindset can be essential for successful, long-term investing. Consider his bold move to inspire confidence during the Great Financial Crisis. In October 2008, during a sustained bear market when U.S. equity markets had already fallen 30 percent, he penned an op-ed titled “Buy American. I Am.”3 At the time, his message may have appeared misguided, as the S&P 500 would go on to drop another 20 percent before bottoming. But Buffett remained steadfast: “Most major companies will be setting new profit records 5, 10, and 20 years from now.”
He certainly wasn’t wrong.
For Buffett’s annual letter, please see:
https://www.berkshirehathaway.com/letters/2024ltr.pdf
- https://www.theglobeandmail.com/investing/markets/stocks/KO/pressreleases/30478569/despite-berkshire-selling-605000000-apple-shares-buffett-still-says-its-a-wonderful-company/#; 2. https://www.morningstar.ca/ca/news/261026/the-4-warren-buffett-stocks-to-buy-after-berkshire-hathaways-latest-13f-filing.aspx; 3. https://www.nytimes.com/2008/10/17/opinion/17buffett.html
