Warren Buffett has spoken: the stock market is overvalued, and he is waiting for a historic crash. On April 1, Buffett gave an interview in which he stated that the risks in the U.S. banking sector are extremely high, and that turmoil in the credit market could spread across various sectors. He warned that once panic sets in, it could trigger a mass exodus of investors, ultimately leading to a historic crash. He admitted that since taking the helm of the company in 1965, U.S. stock indices have halved in value three times, so the current decline is nothing to worry about meaning that current stock market valuations remain unattractive. If the market experiences a significant downturn, Berkshire Hathaway will deploy its cash reserves. There are two implications here: the lack of attractive valuations in the stock market is a key reason why he is holding back and accumulating a large cash reserve. He believes that U.S. stocks are currently overvalued overall; even if they continue to rise, expected returns will be far lower than in the past. While holding cash yields lower returns, it is safer than investing at peak prices. Second, if the market crashes, he will deploy that cash this is his trigger. The nearly $400 billion in cash is essentially ammunition for a once-in-a-century market crash.
He firmly believes that crises are opportunities for wealth creation; as soon as prices drop to sufficiently low levels, he will break his silence and go on a massive buying spree. He waited a full three years for this crisis. In 2023, Berkshire Hathaway’s cash reserves stood at $168 billion; by 2024, they had surged to $325.2 billion; and by 2025, the company’s cash reserves approached $400 billion.
Meanwhile, in the East, Li Ka-shing sold his core asset the UK National Grid, which he had held for 16 years raising HK$110 billion. The last time such a coordinated withdrawal occurred was at the peak of the 2007 bull market, which was followed by the 2008 global financial crisis. In a sense, Li Ka-shing and Warren Buffett are using the final years of their lives to await a once-in-a-century market crash and prove themselves one last time.
How are you managing your investment portfolios right now?