It surely says nothing cheerful that Warren Buffett, the world’s most famous and successful investor, now holds more than half of his company’s net assets in cash and Treasury bills.
Or that the legendary chairman of the Berkshire Hathaway BRK.A BRK.B conglomerate now has more in cash than he does in traded U.S. stocks.
Or that in his latest annual letter to investors, the 94-year-old has taken a break from his usual patriotic boosterism, and instead is warning about the risks to America from “fiscal folly” and from “scoundrels and promoters” who “take advantage of those who mistakenly trust them.”
“The American process has not always been pretty,” he wrote.
It’s a far cry from his usual cheerleading. It’s only four years since he was writing: “Never bet against America.”
But for those scouring his latest annual report for profitable opportunities, Buffett’s comments and financial data suggest that the stocks of the five Japanese “mini-Berkshire” conglomerates he’s been buying since 2019 look like good value.
Buffett — whose longtime Berkshire vice chairman, Charlie Munger, died just over a year ago — is the world’s seventh-richest man with a net worth of $150 billion, according to Forbes. He has made all his money by investing in the stock market since the 1950s, first through a private partnership and then through the publicly traded Berkshire Hathaway investment vehicle.
During that time, he has vastly outperformed stock-market indexes. His stock-picking skills are the stuff of legend — although at least one analysis argues that one of his great secrets was that he simply stuck to buying stocks in high-quality companies, and did so using cheap money from his insurance operations.
The most interesting part of Buffett’s annual report is the balance sheet. Berkshire Hathaway’s holdings of cash and equivalents — mainly U.S. Treasury bills — has hit a record $345 billion, according to the latest figures. That is nearly twice the level of a year ago, and now accounts for a staggering 53% of the company’s net assets.
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It also exceeds Berkshire’s investments in tradable stocks, currently $270 billion. A year ago, Berkshire held nearly twice as much money in stocks as it did in Treasury bills.
Buffett’s retreat from the U.S. stock market comes as U.S. stocks have hit record levels and valuations. By the metric known as the “Buffett indicator,” which compares the value of the U.S stock market with the size of the country’s annual gross domestic product, shares have never been as expensive as they are now.
Buffett sought to downplay fears around his growing cash pile. “Despite what some commentators currently view as an extraordinary cash position at Berkshire, the great majority of your money remains in equities,” he wrote, citing the conglomerate’s huge pile of private businesses. “That preference won’t change. … Berkshire shareholders can rest assured that we will forever deploy a substantial majority of their money in equities — mostly American equities although many of these will have international operations of significance.”
Do-it-yourself investors hoping to profit from Buffett’s legendary stock-picking genius may be eyeing the stocks of the five Japanese conglomerates, or “trading houses,” which he has been buying since 2019. Itochu ITOCY JP:8001, Marubeni MARUY JP:8002, Mitsubishi MTSUY JP:8058, Mitsui MITSY JP:8031 and Sumitomo SSUMY JP:8053 “operate in a manner somewhat similar to Berkshire itself,” Buffett explained in his latest letter. “Each of these large enterprises, in turn, owns interests in a vast array of businesses, many based in Japan but others that operate throughout the world.”
Buffett said his enthusiasm for the companies and their management has grown steadily, and that Berkshire is a “committed” and “long-term” investor. Berkshire owns just under 10% of each company.
Buffett has spent $13.8 billion in total on the stakes, and as of Dec. 31 they were worth a total of $23.5 billion. Since then, the companies’ American depositary receipts have fallen, on average, by 8%. The stocks trade for less than 10 times thier forecast per-share earnings — with Sumitomo the cheapest at 7.5 times forecast earnings, and Itochu the most expensive at 9.7 times forecast earnings. The dividend yields range from 3.3% to 4.2%.
These valuations are far below those currently seen on the U.S. stock market. The S&P 500 SPX, for instance, is now trading at 22 times forecast earnings.
