Buffett's Cash Reserves: Should You Move to Cash Too?
Using Buffet’s cash holdings as a market signal has proven problematic. His company, Berkshire Hathaway, started increasing its cash position in June 2022. However, since then, global stock markets have surged, with the MSCI World Total Return Index rising by about 50%.
If you had followed Buffett and moved your investment to cash, you would have missed out on substantial gains over the subsequent years.
The Problem With Market Timing
The challenge with trying to time the market isn't just predicting when it will go down—it's also knowing when to re-enter the market. Many investors who exited the market before the COVID crash missed the fast recovery that followed.
As shown in the chart below, investors who missed just the 10 best days over a 30-year period would have seen their portfolio approximately 54% lower compared to those who remained invested. These best-performing days often happened right after markets have dropped and when they start to recover.
Staying Invested While Managing Risk
Markets will always fluctuate. Instead of trying to time them perfectly, a better approach is to adjust your investments strategically while staying invested. That’s where thoughtful portfolio management comes in.
To navigate this challenging environment, in recent times we have made the following adjustments:
- Reducing exposure to expensive U.S. stocks and focusing on companies with strong balance sheets and stable earnings.
- Investing in markets with better value, such as emerging markets, to spread risk and find more opportunities.
- Adding more high-quality bonds, which can provide steadier returns if market volatility increases.
- Moderately increasing cash level.
Overall, our strategy maintains a slightly defensive tilt while avoiding the risk of moving entirely to cash and potentially missing market recoveries.
This article has been prepared by InvestSense Pty Ltd ABN 31 601 876 528 on behalf of Primestock Securities Ltd. The information contained in this report is obtained from various sources deemed to be reliable. No representation or warranty is made concerning the accuracy of any data contained in this document and should not be relied upon as such.
