Cash and Berkshire Hathaway’s Annual Letter

For the past several weeks I have been cautioning investors. One of the points I have made was that the “big money” has been selling to the “small money” for a while now.

This weekend Barron’s made it very clear that was going on. In a special section, Barron’s received surveys from 40 major wealth management firms that cater to 8 figure plus net worth families. In it they revealed that cash and very short-term treasuries were becoming an outsize portfolio position to the wealthy – which is what I have been saying has been going on by watching money market inflows.

Also, Warren Buffett came out with his 50th annual shareholder’s letter. Although there is a plethora of articles out there describing the letter, I’d suggest you just read it. The one point I’d make is that Berkshire Hathaway has more than tripled their cash holdings from their “normal” level of $20 billion. The last time he did that was the couple years leading up to the financial crisis. 

I know I get flack from some who think I am being overly bearish. I’ve suddenly become a “perma-bear” to them. That is just patently false. Here’s the title and link to my first letter of 2012, just after getting the gig, for MarketWatch: Your major risk in 2012 is missing the upside. I have been mostly bullish, most of the time, since spring 2009. 

Right now I am hedged and holding significant cash. My hedges are losing or even at the moment. I might lose on some. I hope so. That means my other holdings are going up in most cases. Although I am taking it on the chin with some of my longs as well. Those sorts of things don’t mean I’m going to suddenly become a performance chaser. I invest in what I know and protect from what I’m scared up. It’s a simply practice, but it’s worked extremely well – to the tune of 31% in 2014. I know as long as I don’t bailout on what I am doing, things will work out – again.

Here’s what else I know. We are closer to the end of the bull market than the beginning. There are more stocks overvalued globally today than undervalued. Debts continue to soar and central bankers continue to believe that non-reserve currencies can print with the same effectiveness as the reserve currency. They are going to be very disappointed soon.

There is a correction coming to most assets and a buying opportunity for those holding strong dollars. It might be this year, it might be in a year or two, but, regardless, trying to chase returns now is a suckers game except for the very few who actually know how to trend follow with an escape mechanism. Better safe than sorry if you are not such a person. 

I’m going to cut this short this week. Go read Buffett’s letter, not a bunch of analysis of it.

Kirk Spano

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