It is generally thought that owning shares in conglomerate Berkshire Hathaway (BRK-B:NYSE) is equivalent to holding a microcosm of the US economy, given the broad reach of its investments, from insurance to utilities and railroads.

That notion is becoming more nuanced following the revelation by chair Warren Buffett on 2 November that the Omaha Nebraska-based company sold $36 billion of its share portfolio in the third quarter, pushing its cash pile to a record $325.2 billion.

This means cash now represents just over a third of Berkshire’s market capitalisation. While it may provide a defensive buffer against market volatility, it is over 10-times the tactical cash position which Buffett has held historically.

Last quarter marks the eighth consecutive period of net stock sales including another 100 million of Apple (APPL:NASDAQ) shares, representing a cumulative 600 million Apple shares sold in 2024, with the remaining stake worth around $70 billion.

These actions might suggest Buffett is preparing for tough times ahead and following his own advice of ‘becoming fearful when others are being greedy’.

Adding weight to this view is the fact Berkshire has also halted share buybacks for the first time in 2024. Buffett believes it only makes sense to conduct share buybacks when the shares are trading at a discount to his estimate of intrinsic value.

Berkshire shares are up around 23% so far in 2024, outperforming the S&P 500 index and taking the market value of the company to over a trillion dollars for the first time.  

Long-time Berkshire shareholder and fund manager Tom Russo, principal at Gardner Russo and & Quinn commented: ‘Buffett wants to invest every penny he can in businesses that provide Berkshire an advantage. But at the same time, he’s willing to do nothing.

‘He’ll be there ready and loaded when other investors are despairing or capital-constrained,’ added Russo.

Buffett does not try to forecast the short-term direction of the stock market, but he has in the past referred to a long-term indicator he describes as ‘probably the best single measure of where valuations stand at any given moment’.

The calculation involves dividing the total market value of all publicly quoted stocks by GDP. This measure is equivalent to a price to sales ratio for a company.

The indicator, which is sometimes referred to as the Buffett Indicator has identified prior peaks such as the technology bubble of the late 1990s. The reading as of 30 August 2024 was a record 209% (the market value of all stocks is 2.1 times US GDP) suggesting US stocks are trading 68% above their long-term trend line. 

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