Was Buffett Wrong to Not Deploy Berkshire’s Cash in Q4?




Last week, Berkshire Hathaway (BRK-B) released its 13F for the fourth quarter. There were a few surprises in the filing. First, Berkshire exited Oracle (ORCL) within a quarter of buying the stock. Second, it sold some Apple (AAPL) shares. The addition of Red Hat (RHT), which was acquired by IBM (IBM), was another surprise given the fact that Berkshire chair Warren Buffett has generally refrained from buying tech stocks (MSFT) (NFLX). However, Buffett did admit to missing out on Amazon (AMZN) and Alphabet (GOOG).

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Cash pile

Meanwhile, a major surprise was that Berkshire’s net buys were a drop in the bucket considering Berkshire’s cash pile, which surpassed $100 billion at the end of the third quarter. Berkshire’s net buys were the highest in four years in the third quarter. However, the fourth quarter was quite disastrous for equity markets, and even the stocks owned by Berkshire fell sharply.

Given Buffett’s value investing principles, it seems surprising that the legend did not open the firm’s purse strings in the fourth quarter. In hindsight, Berkshire probably went overboard with investments in the third quarter and was a little conservative in the fourth quarter.

Long-term investor

However, we should remember that Buffett is a long-term investor and short-term market volatility shouldn’t really bother a value investor. However, by not deploying cash, Buffett could be signaling that the worst is yet to come for stocks. Bond king Jeffrey Gundlach also has quite bearish views on markets.

Having said that, if we indeed head towards a recession, as some observers are predicting, Buffett could find much better opportunities to deploy Berkshire’s cash pile, as he did in 2008–2009 crisis. Back then, Berkshire invested in several companies including General Electric (GE) and Goldman Sachs (GS).

Read Analyzing Warren Buffett’s Investments in the 21st Century to see how Berkshire has performed versus the S&P 500 (SPY) this century.

You can also read Is Warren Buffett Expecting a Market Crash for more analysis of Berkshire’s Q4 13F.


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