Warren Buffett Could Continue Wait-and-Watch Approach


Dec. 27 2018, Updated 7:30 a.m. ET

Wait and watch

As noted in the previous article, Berkshire Hathaway (BRK-B) holds a significant amount of cash. Warren Buffett has sometimes been criticized for holding so much cash. However, there haven’t been many reasonably priced opportunities over the last couple of years. Notably, in 2015 while acquiring aerospace parts maker Precision Castparts, Buffett noted that the deal was expensive.

Meanwhile, equity markets have tanked this year with the SPDR S&P 500 ETF (SPY) down 12.2% for the year based on its December 24 closing prices. Even the FAANG stocks have come under pressure, and only Amazon (AMZN) and Netflix (NFLX) are in the green this year. Apple (AAPL), Berkshire’s biggest holding, has also tumbled in the fourth quarter.

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Wait and watch?

There have been concerns about global economic growth in 2019. To add to that, US corporate earnings growth is expected to fall sharply next year after the tax cut lifted 2018 earnings. As several economists have been talking of a possible recession over the next two years, market sentiments have been quite bearish.

We’ll have to wait for the next 13F to see whether Buffett has been aggressively deploying Berkshire Hathaway’s cash. Having said that, it wouldn’t be surprising if the legendary investor continues to play a wait-and-watch game for a little longer, deploying cash in small tranches.

To be sure, while Warren Buffett has an enviable stock selection record, following him isn’t a sure a bet. Please read Following Warren Buffett Might Not Always Yield Profits for more analysis.


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