What Buffett’s Strategy Means for the SP 500

The recent stock market drop has made Berkshire Hathaway a popular choice for investors looking for stability. With a huge cash reserve and steady stock performance, the company is well-positioned to handle market swings. But before making any moves, here are some key points to consider.

Key Takeaways

• Buffett has been selling more stocks than buying for two years, showing he is cautious about the market.
• The Apple sale raises questions: Did he misjudge its value, or was he just reducing risk?
• Berkshire is still not buying aggressively, so it’s unclear if Buffett will take action during this downturn.

Berkshire Hathaway Ended 2024 With $318 Billion in Cash

Berkshire Hathaway finished 2024 with $318 billion in cash, almost twice as much as in 2023. This is much higher than Alphabet's $95 billion and Apple's $141 billion (after subtracting $97 billion in debt). With this much cash, Warren Buffett has plenty of buying power if stock prices drop further.

Note:While having a large cash pile gives flexibility, Buffett has been reluctant to buy stocks recently. His last big buying period was in early 2022 when stock prices were much lower than they are now. If history repeats, he may wait for an even bigger market drop before making major purchases.

Buffett's Trading Activity (2022-2024)

• 2024: Sold $134 billion in stocks, cutting back investments.
• 2023: Sold $34 billion in stocks.
• 2022: Bought $34 billion in stocks, including a major stake in Occidental Petroleum.

Notable Sales

• Apple:Sold 600 million shares (about two-thirds of his stake) at an average price of $185. The stock is now at $227, meaning he missed out on some gains.
• Bank of AmericaSold about 30% of his stake at around $41 per share. The stock is now at $40, meaning he sold at a slightly higher price.

Stock Market & Berkshire’s Performance

The S&P 500 has dropped 4% this year, wiping out gains from late 2024. Meanwhile, Berkshire Hathaway's Class A shares have risen 9%, doing much better than the market. On Monday, when the S&P 500 fell 2.7%, Berkshire rose 0.3%, proving its reputation as a stable investment.

Berkshire’s operating profits also grew 70% in Q4 2024, reaching $14.5 billion. For the full year, profits increased by 25% to $47 billion. Even after adjusting for one-time gains, the company’s strong financials have reassured investors.

Because of this, more investors are seeing Berkshire as a safe bet. However, a 4% drop in the S&P 500 is not a major decline in historical terms. This means Buffett may not be ready to shift from holding cash to making big investments just yet.

Will Buffett Buy Stocks Now?

Many big-name stocks have dropped more than 15% from their highest prices in the past year, including companies like Microsoft, Apple, and Nvidia. But Buffett usually waits for an even bigger market drop before investing heavily.

If the S&P 500 falls another 10%-20%, Berkshire might start buying undervalued stocks, likely focusing on strong companies or industries like energy. But if the market stays steady, Buffett may continue holding cash and investing in Treasury bills instead of stocks.