Buffett Isn’t Calling for A Stock Market Crash

Make sure you do your investing homework…

It was 9:30 p.m. on Sunday night and my phone started buzzing. The kids were asleep after another busy weekend. My wife and I were enjoying some relaxing television time before heading to bed. Yet, given I don’t get a ton of late Sunday night texts, I thought I’d check it out.

When I grabbed the phone, I was a bit surprised. A friend of ours, Lauren, was panicked. She had been catching up on weekend reading. She had just read a recap about Warren Buffett’s annual letter to shareholders. And she learned Berkshire Hathaway’s cash position had swelled to a record $344 billion by the end of 2024.

Lauren was suddenly beside herself. You see she owns a small business with several employees. She invests as much as she can into dividend and growth stocks to grow her wealth. But the article she read about Buffett’s cash hoard said he was worried about a stock market crash… even though he never mentioned one.

As a result, Lauren wanted to dump all the stocks she owned and invest it all in money market funds. So, she logged onto her Fidelity account and started trying to place the orders. But the website wouldn’t accept either her buy or sell orders. She decided that everyone else was trying to do the same thing, so her orders were rejected. That’s when my phone lit up.

After a little time and coaxing, Lauren began to relax. I told her she was making decisions based on emotion. And when it comes to investing, those moments can be your biggest mistake.

Let me explain…

I started by telling Lauren she was forgetting investing basics. It was Sunday night, meaning the stock and money markets were closed for the weekend. As a result, the day orders she tried to place at the market wouldn’t be accepted by Fidelity. So, it wasn’t that the system was overwhelmed with orders, she was entering them incorrectly. If she waited until the next morning, she could conduct her task.

As further evidence, I then told her equity futures were trading higher at the time. They weren’t in the type of freefall associated with everyone and their mother hitting the sell button at the same time. I then walked her through how she could look up the same information on her own.

Then, we discussed the Buffett commentary…

I explained to Lauren that Buffett is a value investor. So, when stocks have been going up, he’s going to find less companies he’s interested in buying, In fact, because he tends to stick to strict valuation metrics, it’s more likely he’d be inclined to sell the shares of businesses he owned.

In addition, I told Lauren that Berkshire has been increasingly interested in Treasury Bills after the Federal Reserve rapidly raised interest rates. I told her that in August 2023, Buffett began expressing his interest in Treasury Bills publicly. He said his firm had been buying significant amounts of the highly liquid short-term investments due to the attractive yields. And I informed her that nothing had changed this year as Buffett disclosed in the shareholder letter that investment income (aka cash) had swelled due to Berkshire’s ever-increasing T-Bill investment.

Lastly, I reminded her to check out the source on her own before getting worked up about someone else’s take. I sent Lauren a link to the Berkshire Hathaway shareholder letter. I suggested she look through the document to confirm everything we just discussed. I even took her to page seven where Buffett says, “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.”

Look, the news headlines are full of turmoil and drama. They want your attention. After all, the more eyeballs they get, the more advertisers are willing to pay for potential clicks. While Buffett’s growing cash hoard may make for some excitement, we must remember he’s 94 years old. He noted in this recent shareholder letter that his days as CEO are coming to an end. He’s preparing to pass the torch to Greg Abel. And let’s say we do experience a stock market pullback, well Berkshire has a massive cash pile that needs to be put to work.

At the end of the day, investing for the long term is where we really build wealth. Maintaining that type of focus removes the short-term noise and keeps us from making emotional mistakes. Just look at what the practice has done for Buffett’s performance. It has made him the one of the greatest, if not the greatest investor ever.

And if all else fails, stick to my final suggestion to Lauren… before you act, sleep on it… and if you feel the same way in the morning, then do what makes you feel comfortable.

Five Stories Moving the Market:

South Korea’s central bank cut its base rate by 25 basis points and lowered its growth forecast for this year, as it resumed easing to support a sagging economy; growth in Asia’s fourth-largest economy remains weak, driven by a rise in global trade protectionism and sluggish domestic demand – WSJ. (Why you should care – this is likely the start of a series of rate cuts by the Bank of Korea)

President Donald Trump said tariffs scheduled to hit Canada and Mexico next month were “on time” and “moving along very rapidly” following an initial delay, even as a U.S. official cautioned the schedule could be less certain – Bloomberg. (Why you should care – the comments come ahead of additional talks with Mexico and Canada ahead of the March 4 deadline)

Apple said it would spend $500 billion in U.S. investments in the next four years that will include a giant factory in Texas for artificial intelligence servers and add about 20,000 research and development jobs across the country in that time – Reuters. (Why you should care – this is likely a gesture by Apple to try and negotiate tariff exceptions related to goods sourced abroad)

Donald Trump’s administration is said to be sketching out tougher versions of U.S. semiconductor curbs and pressuring key allies to escalate their restrictions on China’s chip industry, an early indication the new U.S. president plans to expand efforts that began under Joe Biden to limit Beijing’s technological prowess – Bloomberg. (Why you should care – the headlines on could weigh on semiconductor sentiment ahead of Nvidia’s earnings release tomorrow)

National Bank of Belgium Governor Pierre Wunsch said the European Central Bank may have to lower its key rate to a level that stimulates activity if the eurozone economy remains weak and inflation cools; policymakers meet next week and are expected to lower the key interest rate for a sixth time since June, to 2.5% from 2.75% - WSJ. (Why you should care – Wunsch said increased European defense outlays could boost manufacturing activity and economic growth)

Economic Calendar:

Earnings – AMT, HD

Bank of Korea Monetary Policy Announcement

Germany – GDP for 4Q (2 a.m.)

Fed’s Logan (Dallas) Speaks (4:15 a.m.)

ECB’s Nagel (Germany) Speaks (5 a.m.)

ECB’s Schnabel (Board Member) Speaks (8 a.m.)

BOE’s Pill (Chief Economist) Speaks (9 a.m.)

U.S. – HFA House Price Index for December (9 a.m.)

U.S. – S&P CoreLogic Case-Shiller National Home Price Index for December (9 a.m.)

U.S. – Conference Board Consumer Confidence for February (10 a.m.)

U.S. – Richmond Fed Manufacturing Index for February (10 a.m.)

Treasury Auctions $75 Billion in 6-Week Bills (11:30 a.m.)

Fed’s Barr (Vice Chair for Supervision) Speaks (11:45 a.m.)

Treasury Auctions $70 Billion in 5-Year Notes (1 p.m.)

Fed’s Barkin (Richmond) Speaks (1 p.m.)

U.S. - American Petroleum Institute Crude Oil Inventory Data (4:30 p.m.)