The 60th annual Berkshire Hathaway(NYSE: BRK.A)(NYSE: BRK.B) shareholder meeting didn't disappoint. Warren Buffett gave investors a healthy portion of wisdom, jokes, and insights on the stock market and economy.
However, Berkshire Hathaway's position in risk-free assets like cash, cash equivalents, and Treasury bills continues to surge while its holdings in public equities have dramatically decreased in recent years.
Here's what Buffett had to say about the lack of opportunities he's seeing in the market and what it could mean for your investment portfolio.
Image source: The Motley Fool.
Moving fast when opportunity strikes
When reviewing the quarter's operating earnings during the annual meeting, Buffett called out the abnormally high cash position as a result of a lack of opportunities:
Our financial condition continues to hold a lot more cash and Treasury bills than I would like but that's simply a question of when opportunities occur and if you get real opportunities every five or six years, you know you have to be patient. Charlie [Munger] always pointed out that we made most of our money on about eight or nine ideas over 50 years.
Buffett has an impressive track record of patiently waiting for opportunities to arrive and then pouncing on a great idea. Berkshire loaded up on American Express and Coca-Cola in the late 1980s and early 1990s and has essentially kept those positions the same for the last 30-plus years. A combination of strong gains and consistent stock repurchases has allowed both companies to balloon in value and become top Berkshire holdings.
Berkshire built up most of its stake in Apple between Q1 2016 and Q1 2018 -- pole-vaulting Apple from a new and relatively small position to Berkshire's largest holding in just two years. However, Berkshire moved even faster when selling the position, reducing its stake in Apple by 67% in just one year -- from Q4 2023 to Q3 2024.
Berkshire began buying integrated energy giant Chevron in Q4 2020. The position more or less stayed the same before increasing roughly fourfold in Q1 2022. Chevron went from a relatively small position to one of Berkshire's top holdings in a matter of months. The position has been trimmed since then, but Chevron is still Berkshire's fifth-largest holding behind Apple, American Express, Coca-Cola, and Bank of America.
Mastering the art of patience
Berkshire is content to execute minor moves for long periods of time if it doesn't see compelling opportunities. To quote Buffett during the annual shareholder meeting:
My phone will ring sometime with something that wakes me up. I may be sleeping or something. You just never know when it will happen and that's what makes it fun ... It's a combination of patience and a willingness to do something that afternoon if it comes to you. You don't want to be patient about acting on deals that make sense, and you don't want to be very patient when talking to people about things that will never happen.
In recent years, Buffett has criticized the market as having casino-like tendencies and taking a somewhat defensive approach to capital allocation. It has paid off, as Berkshire has crushed the S&P 500 over the last three and five years.
Buffett also spoke about the art of preserving capital and not taking unnecessary risks. Buffett plans to step down as CEO of Berkshire Hathaway by the end of the year, and the last thing he wants to do is jeopardize Berkshire's stability. To quote Buffett during the annual meeting:
The big thing you have to do is always be sure you can play the next day in terms of financial activities on a meaningful scale ... you only have to get rich once. You don't want to do anything that risk what has been created. If very stupid things are happening around you, you do not want to participate. If people are making more money because they're borrowing money or they're participating in securities that are really pieces of junk, but they hope to find a bigger sucker later on, you just have to forget that. That'll bite you at some point. The basic game is so good, and you've been so lucky to be born now.
Buffett is still very optimistic about the growth of the American economy and the "basic game" of investing in quality companies rather than borrowing money and speculating on stocks just to make a quick buck. But he prefers to extract value and grow the operating earnings of Berkshire's controlled businesses rather than buy large chunks of public equities.
Berkshire's limitations
Berkshire's moves in public equities and cash provide a useful barometer for measuring Buffett and his team's thoughts on present market conditions. However, it's probably not a good idea to make drastic changes to your investment portfolio based on Buffett's actions or inaction.
Buffett has long discussed the limitations of Berkshire's size. When Berkshire was smaller, Buffett could invest in smaller, undervalued companies and the gains would significantly impact Berkshire's performance. Today, Berkshire has a market capitalization of over $1.1 trillion, so it takes billions just to move the needle.
Achieving financial goals involves holding positions in top companies you understand and letting them compound over time instead of trading in and out of stocks during market volatility.
In sum, it is bit concerning that Buffett isn't seeing compelling opportunities right now, but that doesn't warrant an emotional response from individual investors.
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American Express is an advertising partner of Motley Fool Money. Bank of America is an advertising partner of Motley Fool Money. Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Bank of America, Berkshire Hathaway, and Chevron. The Motley Fool has a disclosure policy.
