Warren Buffett, Berkshire Hathaway’s (BRK-B) chair, is known for value and contra-investing. Over the last couple of years, Buffett has often been criticized for holding too much cash. Berkshire Hathaway held more than a $100 billion in cash at the end of the third quarter. In the third quarter, the company added more Apple (AAPL) and Bank of America (BAC) stock, while trimming its stake in Wells Fargo (WFC).
Markets have plunged
US equity markets (SPY) have plunged this month and several indexes are in bear territory, meaning they have lost 20%. Several reasons could be blamed for the recent correction in markets. However, the key premise seems to be that markets are repositioning themselves for lower economic growth in 2019. It looks like a mirror image of December 2017 when we saw a sharp rally in the equity markets as investors priced in synchronized global growth for 2018. Now, it almost seems that markets are repricing themselves for a synchronized global slowdown next year.
Nonetheless, one thing looks certain. Fear has been the dominant theme in these markets. One of Buffett’s famous quotes is “Be fearful when others are greedy and greedy when others are fearful.” Now, as markets have plunged, there are several ways in which Berkshire Hathaway can deploy its cash pile. We’ll explore these options in detail in this series.