Famously known as the ‘Oracle of Omaha’, Warren Buffett’s investment prowess invites comparisons to that of a gifted visionary. Yet the esteemed CEO of Berkshire Hathaway is no fortune teller, rather a careful and conscientious investor that makes calculated decisions.
He has long been recognised for his astute investment strategies and insightful perspectives on the stock market. And the results speak for themselves, with Berkshire Hathaway growing to become one of the most successful businesses in the world.
So when Buffett acts, it’s a good idea to pay close attention. Which brings us to the company’s latest action.
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A $318bn cash reserve
As of the end of 2024, Berkshire Hathaway’s cash reserves have soared to around $318bn, nearly doubling from the previous year. This massive chunk of cash puts the company in a good position amid the current stock market downturn, where the S&P 500 has declined by 4% for the year, and many blue-chip stocks have dropped by over 15%.
Berkshire’s cash stockpiling has been widely reported for months and now it seems we know why. As usual, Buffett’s strategy appears to have paid off, leaving him with excess capital to keep in reserve as a protection against a possible market downturn.
Historically, Buffett’s exercised caution when making investment decisions for Berkshire. This strategy was particularly evident in 2022 and 2023, when the company sold lots of stock. Notably, it offloaded $5bn worth of Bank of America shares and $3bn of Citigroup, and cut holdings in companies such as NU Holdings and Liberty Formula One.
This approach has resulted in Berkshire ultimately holding the largest cash reserve of any US company.
The reasons behind this cautious approach are now clear, given recent market declines, geopolitical trade tensions and inflation concerns. Yet, despite the market slump, Buffett maintains that the majority of Berkshire’s holdings remain in equities, suggesting his continued confidence in the market long-term.
What lessons can investors take from this?
The question on everyone’s lips is: when markets dip, what should investors do to safeguard themselves? Besides building a cash reserve, we could take some inspiration from one of Berkshire’s recent purchases.
Last year, the company stocked up on shares of Heico Corporation (NYSE: HEI), a US aerospace and electronics manufacturer. The business aligns closely with Buffett’s investment philosophy, so it’s one to consider for fans who hope to emulate his success.
As a leading provider of aerospace components, it benefits from a strong market position, catering to both commercial and defence aviation sectors. With a $30.57bn market-cap, it’s a mid-sized firm in US terms, equivalent to that of Zscaler or Delta Air Lines.
Financials look solid and earnings growth is strong, reinforcing its position as a key player in the aerospace and electronics sectors. However, it depends on airline spending and defence budgets, both of which are cyclical.
A slowdown in air travel or a reduction in defence budgets could hurt its profits. In addition, it trades at over 50 times earnings, suggesting it’s still expensive despite high earnings growth.
Still, its portfolio is diversified enough that it can easily adapt to industry changes and mitigate risks associated with market fluctuations. In the current market conditions, that’s a big plus, so I think it’s a stock worth considering during the current economic uncertainty.
