Buffett Sees Market Crash Coming? His Cash Speaks Louder Than Words
By: Mark O’Byrne
GoldSeek.com
21 August 2017
The Sage of Omaha’s adage is “it’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
But for Warren Buffett the current environment doesn’t appear to be offering up any wonderful companies at fair valuations. The situation is so bad that the cash stockpile of Berkshire Hathaway has more than doubled in the last four years, from under $40 billion to $100bn.
The infamous investor is famed for his investment approach of pouncing on companies when they run in to problems and are seemingly undervalued. At the moment though, there aren’t many out there.
The large stockpile is a likely indicator of not only how Buffett negatively views the current market environment but also how he sees the near future and what opportunities it will bring.
Buffett hates cash, he wants to spend it
Buffett has previously stated how much he hates cash, telling investors at the Berkshire AGM that it was a poor way to keep their money.
During the Omaha-based meeting Buffett expressed his frustration with a cash pile that is approaching $100 billion, “We shouldn’t use your money that way for long periods…The question is, ‘Are we going to be able to deploy it?’”
It may well be the case that Buffett is prepared to pay a dividend, stating that dividends could be paid “reasonably soon, even while I am around.” But this is unlikely.
Buffett is known for his dislike of paying dividends. Since he took over Berkshire over half a century ago the company has paid a single $0.10 dividend in 1967. Instead, shareholders have been rewarded with value through investments that have increased the company’s earning power.
Given the company’s track record of generating more than twice the S&P 500’s annualized returns over the past half-century, it’s more likely that Buffet is looking for an attractive acquisition or investment opportunity rather than pay dividends.
Making investments is all very easy when there are good value ones to be picked up but right now there are none.
Buffett can see this and his lack of investment suggests he sees opportunities on the horizon. These can only come about in the event of a market crash or a sharp market correction.
Bargains are tough to find
The last major acquisition by Berkshire Hathaway was the $32 billion purchase of Precision Castparts. For Berkshire Hathaway’s Vice Chairman Charlie Munger this wasn’t the kind of deal that they were used to stating, “this is no screaming bargain like the old days.”
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