A widely followed macroeconomist says Warren Buffett’s Berkshire Hathaway is flashing behavior that diverges from its historical norm.
In a new post on X, macro guru Lyn Alden tells her 902,600 followers that while Berkshire’s $373 billion cash position sounds huge, absolute cash alone could be misleading.
Alden notes that Berkshire is also an insurance company, which is why it needs high liquidity to manage payouts. But she also highlights that the conglomerate’s current cash level stands out more clearly when viewed relative to Berkshire’s overall value.
“Since Berkshire is an insurer, it needs a lot of cash on hand, and so ratio charts tend to be more informative than nominal charts.
Berkshire’s cash amount as a share of enterprise value has averaged 24% over 20+ years, whereas today it’s nearly twice that at 44%.”
Looking at Alden’s chart, the data shows that the last time Berkshire’s cash amount as a share of its enterprise value hit 44% was during the years leading up to the 2008 Global Financial Crisis. The ratio bottomed in 2010, just as the stock market was mounting a recovery.
The ratio also hit lows in 2013 and 2022, which were years when the stock market was either surging or gearing up for rallies.
Last month, Warren Buffett himself said Berkshire would deploy its cash holdings if the stock market collapses.
Disclaimer: Opinions expressed at CapitalAI Daily are not investment advice. Investors should do their own due diligence before making any decisions involving securities, cryptocurrencies, or digital assets. Your transfers and trades are at your own risk, and any losses you may incur are your responsibility. CapitalAI Daily does not recommend the buying or selling of any assets, nor is CapitalAI Daily an investment advisor. See our Editorial Standards and Terms of Use.