I hate to be the fool who bets against Warren Buffett, but his increased desire for cash has scared me over the past month. He has been:

  • Selling bank stocks
  • Selling airline stocks; and
  • Raising debt (in Japan)

With the Corona Virus crash stock market crash, I expected to see him buying stocks, not selling stocks. Especially since he is sitting on about $130 billion in cash already.

So my question is, why is he raising more cash? I do not know the answer, but the possibilities scares me:

  • He thinks the market is going to fall a lot further and wants to raise the maximum level of cash to buy in cheaper when it does (In that case the price of shares in Berkshire Hathaway $BRKA shares will probably fall with the market as well. So should I sell them now and buy back in when the market falls)
  • His insurance subsidiaries have written policies that will incur enormous payouts because of the events surrounding the Corona Virus. And the would have to be enormous as he already sits on $130 billion in cash. The insurance risks he holds are a black box to me and just about everybody else. If Berkshire is liable for a payout of this magnitude, I should definitely be selling my Berkshire shares $BRKB.
  • He is making a huge acquisition (and it would have to be huge because he is sitting on $130 billion in cash). If it was a private transaction - I would have thought something might have leaked out. If it is a publicly listed company, I would have thought we would have seen evidence of it in his SEC filings.

I guess I am not really betting against Warren Buffet. I am acknowledging he is a much smarter investor than I. But because I do not have visibility into the reason why he suddenly needs to raise a bunch more cash - I am scared. When I get scared due to a lack of visibility, I sell shares until I get sufficient visibility to feel comfortable enough to invest again.

Plus there is the ongoing risk of his and Charlie Munger's age, now compounded by the Corona Virus having much worse outcomes for older folk. If either of them died (and one day they will), I am sure Berkshire's share price would dip - no matter who their successors were. Investors like Warren and Charlie do not grow on trees after all.

So it is with those thoughts I am parting ways with my Berkshire shares - hopefully not for long. I am also investing in Bill Akerman's Pershing Square $PSH which has a large investment in Berkshire (and a lot of other good companies) and is trading at a 30% discount to net asset value.

Source: StockCharts.com

Not Investment Advice

As always, this is not investment advice. Do your own research. Consult your professional advisors.