Buffett knows something that we do not know?

When the stock god Buffett hoards more and more cash, other investors, despite being in a bull market, cannot help but speculate: Does Buffett know something that others do not know? Berkshire Hathaway, steered by Buffett, currently holds $325 billion in cash and cash equivalents, which is higher than the market value of well-known companies such as Walt Disney Company, Goldman Sachs Group, Inc., Pfizer Inc., GE Aerospace, and AT&T. In the past few months, Berkshire Hathaway has also actively sold shares of two companies, Apple Inc. (AAPL.US) and Bank of America Corp (BAC.US). Additionally, this is the first time in six years that the company has stopped repurchasing its own shares. Investors' curiosity is not without reason. Buffett called the market overvalued in 1969, and also accumulated a large amount of cash in the years leading up to the global financial crisis in 2007. In hindsight, Buffett's actions on both occasions could be considered "prophetic", as the cash hoarded in advance yielded substantial returns after the crises. Adam J. Mead, a fund manager and Buffett scholar from New Hampshire, said, "He understands the fact that the market will fluctuate and move to extremes." Rising stock values do not necessarily mean that we are on the verge of a collapse or a bear market. However, high valuations could affect future long-term returns. Goldman Sachs Group, Inc. strategist David Kostin recently predicted that the average annual return of the S&P 500 index in the next ten years will be only 3%, less than one-third of the post-war levels. In a highly optimistic investor environment, David Kostin's report may seem "untimely", but it is consistent with other forecasts. Vanguard, a large asset management company, recently predicted that the annual return range for US large stocks in the next ten years will be 3% to 5%, and for growth stocks, the annual return will be only 0.1% to 2.1%. Since the current yield on US Treasury securities exceeds the expected returns of stocks, Buffett seems to have taken away as many chips as possible. But Buffett has publicly stated that he is eager to spend this money. He stated at Berkshire's 2023 annual meeting, "What we really want to do is buy great businesses. If we can acquire a company for $50 billion, $75 billion, or $100 billion, we can do it." The last major acquisition by Berkshire Hathaway dates back to 2010 when Berkshire Hathaway acquired Burlington Northern Santa Fe for $26 billion. Although Buffett is extremely cautious, individual investors do not need to be overly nervous, as individual investors have more choices. Vanguard predicts that the average return rate for non-US developed market stocks in the next ten years will be 7% to 9%, and for US small-cap stocks, the return rate will be 5% to 7% per year. Besides making highly profitable bets on Japanese trading companies in recent years, Buffett has kept most of his funds in the US and may continue to do so. However, changes in Berkshire are inevitable as this 94-year-old man will eventually end his extraordinary career. It seems that Berkshire Hathaway may not be able to continue its long-standing profit distribution scheme. Moreover, the company is now very large and it is difficult to beat the market easily. Adam J. Mead believes that Berkshire Hathaway will have to somehow return value to investors, possibly through dividends. This article is reprinted from "Wande Stocks", translated by GMTEight, edited by Jiang Yuanhua.