Buffett Has Been Hoarding Cash. The Rest of the Market is Doing the Opposite

While Warren Buffett has been steadily increasing his cash reserves, the broader market has significantly reduced its cash holdings, bringing them to their lowest level in 15 years.

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According to Bank of America’s monthly fund manager survey, cash holdings across portfolios fell to 3.5% in February. This is the lowest level since 2010, signaling a shift in the investment strategy of fund managers.

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The survey involved 205 fund managers who collectively oversee $482 billion in assets. This drop in cash holdings triggered a “sell” signal based on Bank of America’s established rule: when cash holdings fall to 4% or lower, it signals the potential for market instability and is considered a time to sell. Conversely, a buy signal is generated when cash holdings rise to at least 5%.

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In contrast to the broader market’s diminishing cash levels, Warren Buffett’s Berkshire Hathaway has been building up its cash reserves. By the end of September, the company had amassed $325 billion in cash. While the recent 13-F filing from Berkshire Hathaway, released late on Friday, did not disclose the exact amount of cash the firm currently holds, it did reveal that the company did not make any significant purchases of U.S.-listed stocks during the reporting period. This further illustrates Buffett's preference for liquidity during times of uncertainty, which contrasts with the trend seen across many other investment firms.

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Despite the reduction in cash holdings, Bank of America noted that other measures of investor sentiment, including allocations to equities and expectations for global growth, had improved in February. Specifically, these measures rose from 6.1 in January to 6.4, although still well below the highs seen in December, following the election of President Donald Trump. This improvement suggests a more optimistic outlook among investors, though caution remains.

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Investors adjusted their portfolio allocations in February, increasing their exposure to eurozone stocks, bonds, and defensive sectors. At the same time, they reduced their holdings in technology stocks, more broadly in equities, and in banks. The sentiment among investors continues to show a preference for stocks, banks, healthcare, and U.S. assets while showing a reduced interest in U.K. stocks, resources, and bonds.

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Interestingly, for the first time in five months, investor probability for a "soft landing" for the economy rose to 52%, up from 50%. A soft landing refers to a scenario in which the economy slows down but avoids a recession.

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Conversely, expectations for no economic landing decreased slightly, from their highest levels in 21 months. Meanwhile, expectations for a hard landing, which would signify a deep recession, remain low, sitting at just 6%. This suggests that while there is some uncertainty, investors largely expect the economy to avoid a severe downturn.

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When it comes to risks for risky assets, the most significant concern among investors remains a global trade war. Following this, the potential for a chaotic rise in bond yields and further Federal Reserve rate hikes are seen as major threats.

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In terms of safe-haven investments, gold was overwhelmingly viewed as the best-performing asset in the event of a trade war. This aligns with recent actions by major investment banks like UBS and Goldman Sachs, who have raised their gold price forecasts.

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One of the most notable developments in the investment landscape is the increasing focus on the “Magnificent Seven” stocks—Apple, Microsoft, Amazon, Google, Nvidia, Tesla, and Meta—which are seen as the most crowded trade among investors, with 56% of managers indicating a long position in these tech giants. Following this, the long U.S. dollar and long cryptocurrency positions are also prominent, reflecting investor confidence in these assets as well.

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The broader market performance has remained strong, with the S&P 500 finishing Friday at its third-highest level in history. The index has gained 4% year-to-date, signaling that investor sentiment remains generally positive despite concerns over cash levels and global risks.

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The Dow Jones Industrial Average and the Nasdaq Composite have also performed well, both within 1% of their record highs. This suggests that despite the cautionary signs in terms of cash reserves and global risks, investors are still willing to invest in equities, especially in the face of ongoing market strength and the search for potential growth.

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In summary, while Warren Buffett continues to accumulate cash in anticipation of potential market opportunities or downturns, most investors are reducing their cash holdings, which has triggered sell signals in the market. Despite this, optimism remains among investors, with some positive changes in sentiment and portfolio adjustments favoring eurozone assets and defensive sectors.

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However, risks such as global trade tensions and rising bond yields remain prominent concerns, and investors are increasingly looking to gold as a safe-haven investment.

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