Warren Buffett isn't Buying ANYTHING Right Now | (Berkshire Hathaway Annual Shareholder Meeting)

So recently, Berkshire Hathaway had its 2020 annual shareholder meeting where Warren Buffett sat down with Gregg Abel to discuss all things finance and Berkshire Hathaway. What was very interesting is that in that meeting, it was revealed that year-to-date for 2020, Warren Buffett has actually been a net seller of stocks.

Now, we all know what's happened in the stock market this year. Looking at the S&P 500, at its worst, it had dropped about thirty-five percent between the 19th of February and the 23rd of March. Now it has since rebounded a fair way, yes, but what's really interesting is that while we did have that amazing opportunity of that thirty-five percent reduction in the stock market, Warren Buffett was basically doing nothing.

If you have a look at this during the meeting, Warren Buffett had actually showed what Berkshire Hathaway's cash position currently is and what he had been doing with his investing over the last little while. If we start with their cash position at the end of the first quarter, Berkshire Hathaway had a cash position of a hundred and twenty-four billion dollars. So even after Q1, Buffett still has a massive, massive cash position. He didn't actually put any of it into the market, as a lot of people, myself included, were expecting.

He also told us in the meeting that Berkshire Hathaway's total equity portfolio currently is valued at a hundred and eighty billion dollars. So if he's got one hundred and twenty-four billion on the sidelines in cash and a hundred and eighty billion dollars in equities at the moment, then forty-one percent of his portfolio is just cash. So just that in itself shows you that Buffett wasn't really buying too much in Q1.

Overall, here we are, we're now in May, and we look back year-to-date, and Buffett really hasn't done much. In fact, it's been a net seller of stocks, even through a market crash that took us down by thirty-five percent. So the next question to ask is, well, why? Why did Warren Buffett not take advantage of the market conditions we just saw?

I've pulled a couple of clips from the annual meeting itself, and these clips are really just about Warren Buffett reasoning his way through his decisions. In the first couple of clips, I wanted to show you guys what Warren Buffett's reasoning behind, you know, before he thinks about deploying his cash and buying equities. His absolutely critical first step is making sure Berkshire Hathaway has enough cash on hand to ensure it is just an absolute financial fortress or, as he calls it, Fort Knox.

"Our position will be to be the stay of Fort Knox, but we don't need it. No, we don't need a hundred, and it's a little higher now than it was at Göran. We don't need one hundred and thirty or thirty-five billion, but we need a lot of money that's always available, and that means we own nothing but Treasury bills. I mean, we do not—we've never owned; we never buy commercial paper. We don't bite. We don't count on bank lines. We basically want to be in a position to get through anything. And we will always keep plenty of cash on hand for any circumstances.

When nine eleven comes along, if the stock market is closed as it wasn't World War one, it's not going to be him. But, you know, I didn't think we were gonna be having a pandemic when I watch that Creighton-Bella Nova game in January there. So, we want to be in a position at Berkshire where, um, well you remember Blanche DuBois in A Streetcar Named Desire? That goes back before many do, but she said she didn't want him. She— the fine chose K, she said that she's dependent on the kindness of strangers.

And we don't want to be dependent on the kindness of friends." Even so, here Buffett's talking about how he wants to run Berkshire Hathaway into the future.

The first point is he doesn't want to do anything that could potentially disrupt the financial health of the company. He doesn't want to be reliant on the kindness of strangers, but he doesn't even want to be reliant on the kindness of friends. He doesn't want to have to rely on the banks. He doesn't want to have to rely on finding new investors. He doesn't want to rely on the fact that the Fed will step in and make sure the markets still keep turning over.

He just wants Berkshire Hathaway to be so strong that they could deal with any problem that's thrown at them. They could just deal with it by themselves without any help, and he actually wants Berkshire Hathaway to be in a position where they could potentially help other companies. Because if they are in a position where they have the cash and they could help other companies in a time where they really can't get their hands on any money, then that can lead to really good deals for Berkshire Hathaway.

And going on from that, very interestingly, Buffett also talks about how the one hundred thirty-five billion dollars that Berkshire has in cash, if you also consider April, then he actually talks about how he doesn't think that that's a really huge sum of money to have on the sidelines for the worst-case scenario that he can see playing out in his own mind.

“Take a listen: Warren, why are you recommending listeners to buy now, yet you're not comfortable buying now as evidenced by your huge cash position? Well, hey, as I explained, the position isn't that huge when I look at worst-case possibilities. I would say that there are things that I think are quite impossible, improbable, and I hope they don't happen, but that doesn't mean they won't happen.

I mean, for example, in our insurance business, we can have the world's or the country's number-one hurricane—let's ever had it, but that doesn't preclude the fact we got out the biggest earthquake a month later. So we are not—we don't prepare ourselves for a single problem. We prepare ourselves for problems that sometimes create their own momentum.

I mean, two thousand eight and nine, you didn't see all the problems the first day when really what really kicked it off was when the Freddie and Fannie, the GSEs, went into conservatorship in early September, and then when money market funds broke the buck. I mean, there are things that trip other things, and we take a very much a worst-case scenario into mind that probably is considerably worse case than that most people do.

So, uh, I don't look at it as huge." Reading between the lines a little bit here, this makes me kind of think that Buffett does not believe the worst is over. I feel like Buffett is kind of alluding to the fact that we might very well see a prolonged recession off the back of this global shutdown due to the pandemic. Thus, he actually doesn't believe that the one hundred thirty-five billion dollars in cash is going to be, you know, a huge amount of money that Buffett or Berkshire Hathaway could start playing around with, buying this and buying that.

As he kind of says a couple of times throughout the annual meeting, Berkshire Hathaway could very well need a fair portion of that money across the next couple of years, you know, in a worst-case scenario. So, I think that's one of the first big takeaway points from what Buffett was talking about at the annual shareholder meeting is that he definitely doesn't think that this is over.

However, another reason that he discussed as to why Berkshire Hathaway hasn't really been doing any buying despite the market going down so much is he just said that really they have not found any fantastic opportunities.

Now, of course, that doesn't mean there are no opportunities out there. It just means that there are no opportunities for Berkshire Hathaway because remember, Berkshire is such a monster, such as the massive company that they're only looking for deals in the billions or tens of billions of dollars, right? If there's a fantastic opportunity but it's only in the millions, hundreds of millions, then it's just not going to be worth their while pursuing that opportunity because it's just a peanut.

It's just—it's so small; it's just not going to have a significant impact on both shows business over a long period of time. Now, following on from that point, also in the shareholder meeting, Warren Buffett actually talks at length as to how fast the Federal Reserve was to act this time around.

He actually noted that it's because the Federal Reserve stepped in and kept things moving, and they stepped in so quickly that that's probably the reason as to why Berkshire Hathaway hasn't had any really significant opportunities to deploy some of their cash yet, even though the economy has deteriorated rapidly over the last few months.

“Why have we not acted as a lender of support? You know, we haven't seen anything attractive and frankly wasn't predicated on this, but the Federal Reserve did the right thing and they did it very promptly, which they should have, and I salute him for. But that means that a lot of companies that needed money and probably should have been done their financing a little earlier, but they're perfectly decent companies got the chance to finance in huge ways in the last five weeks or thereabouts.

I mean, it set records. So there is no shortage of funds at rates which we would not invest out. So we have not done anything because we don't see anything that attractive to do. Now, that could change, you know, very quickly, or it may not change. But in 2008/09, the truth is we weren't buying those things to make a statement to the world.

They may have made a statement to the world to some extent and I'm glad that they did if they did, but we did what we did was not designed to make a statement. It was designed to take advantage of what we thought were very attractive terms, but they were terms that nobody else was willing to offer at that time because the market was in a state of panic.

And the market in equities was in a state of panic for a short period of time when the virus broke out and/or spread in the United States and that became apparent. The debt market was frozen or in the process of freezing, and that changed dramatically when the Fed acted. But who knows what happens next week or next month or next year? The Fed doesn't know. I don't know, and nobody knows.

There's various—there's a lot of different scenarios that can play out, and under some scenarios, we'll spend a lot of money, and other scenarios, we won't."

So that's what Buffett had to say. And this is what Greg Abel had to say about the position that Berkshire Hathaway was in during that March downturn: "Yeah, well, I think your comment on the Fed warned. Because, as you know, interestingly, when it was first occurring, there were calls coming in, not the size of transactions we're interested in nor companies we were inclined to act upon, but there was that general interest out there as people were in a difficult point in time looking at their balance sheet and deciding what they were going to do.

But the reality is those companies were not of interest, and post basically effectively March 23rd, the companies have been able to act."

So overall, that is what Warren Buffett is doing with Berkshire Hathaway's money. He obviously isn't investing very much of it at the moment, and he says himself while they do have a hundred and thirty-five billion dollars on the sidelines, he may need a lot of that cash in a worst-case scenario. So I think that if you read between the lines, then that's kind of a hint that Buffett kind of believes that the worst may very well be yet to come.

But with that said, he definitely acknowledges that he doesn't need one hundred thirty-five billion dollars of cash on the sidelines just to help Berkshire get through, and he would still be open to a deal in the tens of billions of dollar region, kind of up towards forty billion dollars, as he said. But unfortunately for Berkshire right now, the likelihood of that doesn't seem to be very high just because this time around what we saw in March is that the Federal Reserve stepped in very quickly and acted.

And that meant that while Berkshire Hathaway was starting to get a few phone calls, they really weren't seeing any of those big deal opportunities that they could take advantage of, like what they did during the GFC. But anyway, guys, that is kind of my take on it. I'd love to hear what you think.

Do you think that Buffett should have been more active in the market downturn? I'd love to hear your perspective on it and whether you think the worst is yet to come. Leave us a comment. Do you think that the worst is yet to come, or do you think that it should be pretty much smooth sailing from here?

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