January 29, 2024

Throughout his history, legendary investor Warren Buffett and his company Berkshire Hathaway have raised huge piles of cash before bad economic times. Berkshire then deploys the funds at what it thinks is the right time towards the right companies.

Right now, Warren Buffett and Berkshire are sitting on $157.2 billion in cash. Historically, when Berkshire has this much cash, it’s preceded or coincided with an economic slowdown. Interestingly, Buffett sees two major recession flags right now – a potential bubble in tech stocks (e.g., NVIDIA’s price-earnings ratio is about 119-to-1) and punishing inflation (e.g., total money supply contracted for the first time in 74 years; over time this preceded vast unemployment and downturns).

The last time Berkshire had so much cash was in November 2021. Back then, unprecedented fiscal and monetary stimulus, low interest rates, and strong consumer spending helped inflate stock valuations after a sharp decline due to COVID-19 restrictions.

Then the S&P 500 peaked in December 2021. It eventually fell 25.0% over the next several months.

From 2013-15, Buffet grew Berkshire’s cash hoard from $45 billion to $64 billion. Most investors won’t remember, but there was a quick bear market in late 2015 and early 2016. The S&P 500 declined 19% and tech stocks fell even more.

Shares of tech giant Apple fell to the low $20 range by May 2016. That’s when Berkshire began buying Apple stock, purchasing almost 60 million shares in the first two quarters of 2016. Berkshire then bought Apple every quarter from the fourth quarter of 2016 to 2018’s third quarter.

Today, Berkshire owns almost 1 billion shares of Apple, worth about $175 billion, and seems ready to pounce on a deal again. With its record cash to deploy and the spotty economic record attached to such cash piles, it could mean storms on the horizon.