InvestorQ : Why is Warren Buffett sitting on so much of cash and not investing in the current bull rally?
vaishnavi mhatre made post

Why is Warren Buffett sitting on so much of cash and not investing in the current bull rally?

vidhya Laxmi answered.
4 months ago

In his annual general meeting held last year, Buffett had underlined that he was still extremely uncomfortable about stocks due to ultra-rich valuations. That seems to be borne out by the latest regulatory filing Tuesday which show that Buffett is still extremely hesitant about stocks. As a result, Berkshire Hathaway continues to hoard record levels of cash.

In the last few months Berkshire Hathaway has consistently exited key banking stocks that it has held for a long time including the formidable JPMorgan Chase. Additionally, Buffett has boosted stakes in pharma giants while avoiding Pfizer despite its relative success in the anti-COVID war. Berkshire also trimmed its positions in Apple but bought more of Verizon Communications and Chevron.

Of course, the truth is that the filing does not cover any purchase or sale data for the months of January or February of 2021 and that should give more clarity. These will be revealed in the coming week when Buffett will release his famed annual letter to Berkshire shareholders. Despite Buffett playing his cards awfully close to his chest, some interesting trends do emerge about his portfolio approach. Let me highlight as under.

· Clearly, Warren Buffett appears to be sticking with companies that have simple business models and are not banks. For example, Buffett has been buying shares of T-Mobile and Verizon, which are entirely focused on 5G wireless networks.

· Buffett has avoided AT&T as it struggles to integrate its acquisition of Time Warner as well as its rather curious deal with HBO Max. Buffett’s buying mantra has always been to stick with simple businesses that he understands. As Buffett normally likes to put it, the model must be so simple that it can illustrated on a blackboard with a piece of chalk.

But what really confounds a lot of watchers and analysts is his willingness to sit on cash notwithstanding the fact that the Buffett stocks have actually underperformed in the last few quarters. In fact, had it not been for their investment in Apple which paid rich dividends, the performance of Berkshire Hathaway could have been a lot worse. But Buffett refuses to put money unless he sees the margin of safety in stocks.