Warren Buffett Isn't Buying... Why Should Anyone Else?

Authored by Simon Black via SovereignMan.com,

Over the weekend on Saturday morning, amid its usual fanfare and attention, Warren Buffett’s company Berkshire Hathaway released its annual report to the public.

This is a pretty big deal each year. Investors and financial reporters typically wait with baited breath to hear what the Oracle himself has to say in his legendary annual letter.

Buffett’s topics in previous letters have covered a lot of ground– the state of the US economy, value investing education, why Wall Street is so deeply flawed, commentary on financial markets, etc.

This year’s letter was, as usual, quite interesting… but primarily because of what Buffett said about his own business.

Berkshire Hathaway is an enormous enterprise; it’s essentially a $500 billion holding company that owns dozens of smaller businesses, all of which collectively generate tens of billions in free cash flow.

Buffett’s primary mission is to acquire more businesses and expand Berkshire’s portfolio… and then ensure that each of those subsidiaries has top quality management to grow the cashflow.

And that’s what was so interesting about this year’s letter: Buffett couldn’t really do his job.

According to Warren Buffett himself:

In our search for new stand-alone businesses, the key qualities we seek are durable competitive strengths; able and high-grade management; good returns on the net tangible assets required to operate the business; opportunities for internal growth at attractive returns; and, finally, a sensible purchase price.

That last requirement proved a barrier to virtually all deals we reviewed in 2017, as prices for decent, but far from spectacular, businesses hit an all-time high.

Now, consider that Berkshire Hathaway’s cash pile rose to an astonishing $116 billion at the end of 2017.

With that much money on hand, very few companies are out of Buffett’s reach.

Specifically, $116 billion would have been enough money to acquire any one of 465 out of the 500 largest companies in the United States– including Nike, Starbucks, UPS, Netflix, and Ford.

Even more, Buffett had enough cash to collectively acquire a full TWENTY FIVE of the smallest companies in the S&P 500 (including AutoNation, Staples, Bed Bath & Beyond) and still have several billion dollars left over.

But he didn’t.

Even though one of his key roles is to acquire businesses and bring them into the Berkshire Hathaway tent, he didn’t acquire a single one of those companies.

Why? Because they’re ALL overpriced.

Read that quote again: “[P]rices for decent, but far from spectacular, businesses hit an all-time high.

He went on to write, “Indeed, price seemed almost irrelevant to an army of optimistic purchasers.

Investors are essentially paying record prices for shares of businesses that aren’t even all that great.

Now, Buffett didn’t specifically advise people to avoid stocks. But actions speak louder than words. And Buffet’s not buying.

Think about that: one of the richest guys in the world– one of the most successful investors in history– thinks assets are too expensive to buy.

People don’t tend to get rich (or stay that way) by buying mediocre assets at all-time highs.

The time to buy is when prices crash… when the highest quality assets can be acquired for peanuts.

And as sure as night follows day, prices will decline. Asset prices always move in boom/bust cycles.

As Buffett himself wrote in the annual report,

In the next 53 years our shares (and others) will experience declines resembling those in the table. No one can tell you when these will happen. The light can at any time go from green to red without pausing at yellow.

He knows there will always be periods of panic and fear when asset prices crash. But “[w]hen major declines occur, however, they offer extraordinary opportunities. . .”

Taking advantage of these opportunities requires having sufficient ammunition. Namely, cash.

If you want to be able to acquire the highest quality assets when prices crash, you have to be liquid. You can’t have your wealth tied up in illiquid assets whose prices have just crashed.

This is another area where Buffett’s actions speak louder than words.

Over the course of 2017, he increased Berkshire Hathaway’s cash position to $116 billion– a whopping 35% increase over the previous year.

Put these two observations together: Buffett’s NOT buying… and he’s greatly increasing his cash position.

It’s almost as if he’s preparing for a major decline… and getting ready to pounce when assets are cheap.

Actions speak louder than words. And his actions are definitely worth considering.

And to continue learning how to safely grow your wealth, I encourage you to download our free Perfect Plan B Guide.

Comments

SilverRhino Tue, 02/27/2018 - 11:05 Permalink

That's because the little fuck is positioning himself to scoop up massive assets in a possible crash that his little fucktard conspiracy theory buddies are working to engineer.  

 

Said with 100% seriousness

 

mtl4 ThinkerNotEmoter Tue, 02/27/2018 - 11:34 Permalink

This just shows that Buffett's old modified Ben Graham valuation system isn't working and yet the stock market will continue to rise an baffle everyone.  Why is that?  It will take a while for the rationale behind the meteoric rise to start coming forth but as world (not just the US!) gov't confidence crumbles away people will scramble for shelter in any assets they can get their hands on as the gov't bond market implodes.

 

Guess where Buffett has that $116B, it's not in cash, it's in T-bills........thanks for playing!

In reply to by ThinkerNotEmoter

E5 Ghost of Porky Tue, 02/27/2018 - 13:19 Permalink

Everyone else has all this new printed money and Buffett has hard capital earned the long way.  He can get owned.

If the new printed money is in stocks, it can be destroyed.

If the new printed money is used to buy a company, and then the receiver buys buildings and assets, trickle down so to speak, then buffet is going to get owned as he is the butt end of inflation.

However, if Buffet is betting on a stock market crash, and the money spent is trapped as stock of a company instead of durable goods... well fuck all he will be buying everything.

...unless the FED says they need to print money again.  That would never happen.

 

In reply to by Ghost of Porky

MK ULTRA Alpha P.K.Snosage Tue, 02/27/2018 - 12:14 Permalink

Buffett's not selling either, so it doesn't seem like a panic moment after all. Buffett is doing the same thing he's always done, build cash then buy dirt cheap, build cash then buy dirt cheap, over and over the same method, Buffett buys on the cheap.

Buffett is bad mouthing a market that's running on future expectation of economic success and he knows it, what he's saying, he didn't catch the wave so I'm waiting.

Well will the author come back when the market doesn't crash and Buffett is still waiting? Buffett could have spent on buying rail cars, or investing in a rail car manufacturing company, Buffett is sitting on capital when the economy is demanding input like more rail cars . Buffett has a railroad company. The demand for rail cars and railroad services is real high.

There's other sectors, pipe manufacturing is so hot, they can't keep up with demand, the entire industry must expand.

Buffett is betting against the Trump tax cut, and the markets expectation of a super boom. Will the super investor be right or in 18 months from the tax cut will we be in a super economic boom?

My lowly opinion, the only thing that can derail the super boom is a war.

In reply to by P.K.Snosage

natxlaw Tue, 02/27/2018 - 11:08 Permalink

Buffet will get his ass handed to him when Trump lets the dollar die. When the dollar loses 90% of its value, and the market goes up 500%, everyone else loses 50% and cash hoarders lose 90%. This is how the crash will be managed, whether Buffet knows it or not. But he can't do the intelligent thing and buy PMs instead of cash, as that would end the suppression that has kept the petrodollar in business and made the 1% of the world great. He's got to maintain the power structure that made him rich, without that, he's a big fat nothing.

Endgame Napoleon natxlaw Tue, 02/27/2018 - 11:40 Permalink

He buys treasury bills, saying it will ensure more liquidity if the giant reset occurs. He claims that Berkshire is looking for strong companies to purchase with all of their cash stash, but apparently, despite constant cheerleading by the MSM during decades of mass underemployment of US citizens, there aren’t that many solid companies available at a price Buffett finds palatable. It sounds like a bunch of not-so-profitable companies are strutting around, offering less-than-stellar wares with sky-high price tags.

https://www.wsj.com/articles/playing-with-100-billion-warren-buffett-is-giant-trader-of-u-s-treasury-bills-1519381801

In reply to by natxlaw

Grumbleduke Tue, 02/27/2018 - 11:10 Permalink

at this point he's just dodging the bullets. Literally.

A nation full of guns, patriots and bigmouths - schools are shot up, yet this shithead is flying high. What's wrong with that picture?

LawsofPhysics Tue, 02/27/2018 - 11:13 Permalink

So what?  Warren is definitely a "club member".  He may not be one of the casino owners, but he knows what's up and at this stage of his life he probably really doesn't give a shit.

"Full Faith and Credit"

same as it ever was!

MusicIsYou Tue, 02/27/2018 - 11:16 Permalink

So basically if Buffet or anyone similar to him doesn't like your business idea you'll never get start up money. So basically if they even suspect that you're intelligent enough to majorly compete with them someday,  you'll never get startup investments since they control it all. And all that means that society will never be more intelligent than Warren Buffet,  and will never innovate anything he doesn't agree with. I guess we better hope that they're actually intelligent,  and not just crooks. Or if you're like me knowing what the truth is,  you're laughing at the fact society is running around a circle track not progressing, but instead running back to the beginning. Like a race track where the finish line is actually the beginning,  but everybody cheers as if the horses,  dogs,  or cars didn't just in reality cross the beginning line. And that's why a week later they're doing another race,  because in reality their last race finished at the beginning line. 

adr MusicIsYou Tue, 02/27/2018 - 11:39 Permalink

Exactly.

I was working for a company that went from $35k in sales to $62 million in four years because of the work that I did. I created the #1 checked out product in confirmed register sales at the largest big box store in my market sector. Hmmmm, how could a product that sold for $29 and generate $25 million in retail revenue be the #1 checked out product if that company supposedly sells over $8 billion annually? Something doesn't make sense.

Anyway, because of the performance of my product I was invited to a meeting with the Senior VP of the company. In this meeting it was said that if I were to let the company know of certain plans regarding a type of filing, I would be guaranteed a certain amount of pre-market shares that would be bought. Helping fund the necessary inventory that would need to be purchased to enter the big game. I was also told that a very large order could be placed at a time that would make the first numbers after an IPO look very good.

See they were looking for a wedge company to put pressure on the major players in the space to try and force better margins. By inserting a new and upcoming brand that could steal floor space, they could negotiate better terms with the other vendors. Essentially I was going to be used as a pawn on two fronts. I was going to be used as a stock market scam for the directors to make a ton of money on selling shares in an IPO and to get better wholesale pricing from current publicly traded vendors.

Before any of that could happen, a competitor of ours was sued out of existence for making false claims. That moron Jim Cramer said on his show that my market sector would be worth at least $8 billion by 2014, really??? A handful of companies doing less than $100 million in gross sales in 2008 would grow to $8 billion in six years? Well, that's the way Wall St works. They inflate and fake everything.

That $8 billion figure got the lawyers foaming at the mouth. We had six lawsuits filed against our company almost immediately even though we never made any false claims. The lawyers smelled blood in the water when they took out our competitor and they poisoned the well. One attorney filed claims against vendors of the product and that was it.

That offer to buy shares, give me a big fat order, was gone. In two years our sales cratered to $2 million and that was it.

THE CLUB MAKES YOU AND THE CLUB BREAKS YOU!!!

There is no real business in America. Just the con game Uncle Warren plays.

In reply to by MusicIsYou

Okienomics MusicIsYou Tue, 02/27/2018 - 11:54 Permalink

ADR said: "I was working for a company that went from $35k in sales to $62 million in four years because of the work that I did. I created the #1 checked out product in confirmed register sales at the largest big box store in my market sector. Hmmmm, how could a product that sold for $29 and generate $25 million in retail revenue be the #1 checked out product if that company supposedly sells over $8 billion annually? Something doesn't make sense."

Hold on. The first sentence said the company went to $62 million in sales. The last figure was "over $8 billion annually." Sort of looks to me like the inflated number was yours. What's missing?

In reply to by MusicIsYou

dexter_morgan Tue, 02/27/2018 - 11:27 Permalink

Of course, because he is accumulating cash so he can buy assets at pennies on the dollar when they crash.

 

Anyone else getting sick of hearing about this fuckwad?

Nobody For President Tue, 02/27/2018 - 11:55 Permalink

Ahh, Simon: I was not waiting with 'baited breath':

Shall I bend low and in a bondman's key,
With bated breath and whispering humbleness, Say this;
“Fair sir, you spit on me on Wednesday last;
You spurn'd me such a day; another time
You call'd me dog; and for these courtesies
I'll lend you thus much moneys”?

That set phrase, "with bated breath," is the only place you’ll hear "bated" used these days. Since "bated" is such an archaic word, it’s common to see the phrase incorrectly written as "with baited breath."

 

MusicIsYou Tue, 02/27/2018 - 11:58 Permalink

Today, the mega intelligent do not innovate, so society just crashes and burns. He's got the whole world in his hands,  he's got the whole wide world in his hands... . 

He's got Warren Buffet in his hands

He's got the whole world in his hands. 

BritBob Tue, 02/27/2018 - 11:59 Permalink

He sometimes gets his fingers burnt (but heck he can afford it).

Warren Buffett admits 'thumb-sucking' over Tesco cost him $444m

In a letter to shareholders, the American billionaire said he had made a ‘huge mistake’ by investing in the supermarket.

(March 2015).

Pro_sanity Tue, 02/27/2018 - 12:00 Permalink

Ok, let’s see what the Morgans, Rockefellers, Rothchilds and the rest of the cabal are doing so I can avoid getting raped.

 

Why is conventional wisdom warn not to time the market, but Warren is so good at it!

I am Groot JibjeResearch Tue, 02/27/2018 - 13:19 Permalink

And water. Pretty soon, oil will be taking a back seat for pointless bullshit wars as water resources dwindle. The world population clock has the population slated at 10 billion for 2050. That's a lot of damn mouths to feed and thirst to quench. Somebody better lower the cost of desalination to pennies a gallon or the entire world is gonna be a war zone. Maybe I'll start a urine recycling company. I'll call it the Self Made Lemonade Co.

In reply to by JibjeResearch

InnVestuhrr Tue, 02/27/2018 - 15:17 Permalink

My dogs have always reliably sensed when earthquakes and storms are coming, looooong before the scientists make any confident predictions.

My dogs have already sold out of all their equities and harvested their capital gains.