It is, of course, unwise to blindly follow the actions of other investors – professional, or private. All decisions should be made following a proper evaluation of your financial goals, time horizon, and attitude to risk. So far, so Foolish.
Nevertheless, keeping one eye on what those with an exemplary track record are up to makes sense. This is certainly the case when it comes to someone like Warren Buffett – generally hailed as the greatest (and richest) investor that’s ever walked the planet.
But what the Sage of Omaha has been doing lately might come as a surprise to some.
Cash-rich The amount of cash held by Berkshire Hathaway (NYSE:BRKa) — Buffett’s investment company — is now approximately $130bn (£98bn).
This might be less than the $200bn he’s thrown at long-time favourites such as Coca-Cola (NYSE:KO) and, more recently, tech-giant Apple (NASDAQ:AAPL). But it’s also a lot more than it once was.
For someone who has built an estimated wealth of $90bn through buying when others are fearful, it’s telling that Buffett hasn’t been buying much of anything lately.
This reluctance is understandable. With US markets at all-time highs, even he’s struggling to locate value. Famous for wanting to purchase quality businesses at reasonable prices, rather than reasonable businesses at cheap prices, it would seem that the former are becoming as rare as hens’ teeth.
This wouldn’t be all that interesting were it not for the fact that Buffett’s got form when it comes to judging when to build a cash pile.
You see, he did exactly the same thing in the run-up to the dotcom bust at the beginning of the millennium, and then again in the run-up to the financial crisis. Despite being averse to timing the market, he seems to be rather good at it. And with acquisitions very much the flavour of the day in the US (a sign that those selling their companies believe they’ve hit peak value?), it seems Buffett is preparing himself for the end of the longest bull market in history.
Should UK investors do the same? Tricky one. Since shares in UK-listed companies are generally cheaper than the sort of valuations being slapped on firms across the pond, there’s an argument to ‘keep calm and carry on’. Sure, a few look expensive, but most are nowhere near as dear as the celebrated FANG stocks (Facebook (NASDAQ:FB), Amazon (NASDAQ:AMZN), Netflix (NASDAQ:NFLX), and Google (Alphabet (NASDAQ:GOOGL))). The fact that inflation hit a six-month high last week is another reminder that staying in cash for too long is never a great idea.
It also means missing out on dividends. Given that a significant proportion of investment returns over the long term are generated from receiving and reinvesting payouts, there’s much sense in retaining your income-generating holdings, at least.
On the flip side, it’s hard to argue against keeping at least some powder dry, particularly as we’re approaching what’s likely to be a rather volatile time for the UK, in political and economic terms.
Naturally, there’s no guarantee that markets will suffer in the run-up to Brexit (it’s a ‘known unknown’, after all), but the ongoing uncertainty as to what sort of deal might actually be agreed is bound to keep things ‘interesting’, shall we say. Should your high-quality targets suddenly become a lot cheaper, you’ll be thankful you’ve kept some money in reserve.
Paul Summers has no position in any of the shares mentioned. John Mackey, CEO of Whole Foods Market (NASDAQ:WFM), an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. The Motley Fool UK owns shares of and has recommended Alphabet (C shares), Amazon, Apple, and Netflix. The Motley Fool UK has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.