The Berkshire Hathaway Inc. (NYSE: BRK.A) (NYSE: BRK.B) 2019 annual general meeting (AGM) of shareholders, also known as Woodstock for Capitalists, was held over the weekend.
The Berkshire Hathaway AGM is always highly anticipated by investors as comments made during the meeting by Warren Buffett, or his partner Charlie Munger, can have an effect on short term volatility in the market and provide long term investors with ideas on where to allocate capital. As always, Buffett didn’t disappoint with his honest answers to shareholder questions.
Buffett Staying In Cash For Now
Currently, Berkshire Hathaway holds cash of $110 billion.
Buffett was asked by an investor why his company has not deployed this large cash holding into an index fund over the past 10 years? Considering the S&P 500 has been on a bull run since the bottom of the GFC, returning 335%, it was a noteworthy question.
Buffett responded that this strategy would limit the chance to buy businesses at bargain prices once the opportunity arises. At the moment though, Buffett believes companies with positive long-term outlooks are valued extremely high. Once share prices move back to levels of value, Berkshire Hathaway will look to deploy its cash.
Did Berkshire Hathaway Pay Too Much For Amazon?
It was revealed last week that Berkshire Hathaway bought a new position in Amazon.com Inc (NASDAQ: AMZN). The news concerned value investors as many people believe Amazon is overvalued rather than undervalued.
However, it turns out, Buffett was not behind the purchase of Amazon stock; instead, it was one of his two successors who made the choice. Buffett has chosen two successors, Todd Combs and Ted Weschler, to manage Berkshire Hathaway’s money once he and Charlie Munger step down. Buffett says he has complete faith in the pair who are true value investors.
The purchase of Amazon shares is still an interesting one due to Buffett’s reluctance in the past to invest in technology stocks. Berkshire Hathaway also recently purchased Apple Inc (NASDAQ: AAPL) shares, indicating that some companies in the technology sector are now being seen as value stocks rather than as growth stocks.
What Does This Mean For Individual Investors?
Buffett believes that it is currently difficult to find undervalued companies due to the strong bull market.
With such a large holding in cash, it seems to me that Buffett is waiting for a market correction to buy cheap companies. Buffett still advises individual investors to buy index funds, which will outperform the majority of actively managed funds if held over the long term.
In my opinion, it is always wise to hold a certain percentage of cash in your portfolio to take advantage of any cheap companies that may become available in a market correction.
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Disclaimer: Any information contained in this article is limited to general financial/investment advice only. The information has not taken into account your specific needs, goals or objectives, so please consider consulting a licenced and trusted adviser before acting on the information. Please read The Rask Group’s Financial Services Guide (FSG) for more information. This article is authorised by Owen Raszkiewicz of The Rask Group, which is a corporate authorised representative No. 1264179 of Strawman Pty Ltd (ACN: 610 908 211) (AFSL: 501 223).
At the time of publishing, Jack does not have a financial interest in any of the companies mentioned.