Warren Buffett’s Berkshire Hathaway reported record annual profits and increased its cash pile to US$334.2 billion. Intriguingly, Buffett, the so-called Oracle of Omaha, took time in his personal letter to shareholders to speak against the merits of this position.
“Despite what some commentators currently view as an extraordinary cash position at Berkshire, the great majority of your money remains in equities. That preference won’t change,” he writes. This comes after eight successive quarters of Berkshire acting as a net seller.
“Berkshire shareholders can rest assured that we will forever deploy a substantial majority of their money in equities,” Buffett says. “Berkshire will never prefer ownership of cash-equivalent assets over the ownership of good business.”
Does this suggest that Buffett deems current US stock valuations as too high and is awaiting a crash and buying opportunity, as he did with the dot-com bubble and bust over two decades ago? Possibly.
Regarding cash and bonds, he says “paper money can see its value evaporate if fiscal folly prevails” and that “fixed-coupon bonds provide no protection against runaway currency”. It remains to be seen if his remarks are prescient.
Buffett also praises capitalism: “It has its faults and abuses – in certain respects more egregious now than ever – but it also can work wonders unmatched by other economic systems”. But he also tells the government to “take care of the many who, for no fault of their own, get the short straws in life. They deserve better. And never forget that we need you to maintain a stable currency and that result requires both wisdom and vigilance on your part.”
In the light of the right-wing backlash against pleas from Mariann Edgar Budde, the Episcopal Church’s bishop for the US administration “to have mercy on the people in our country who are scared now”, it will be interesting to see reactions to the remarks from one of the world’s most successful capitalists.
