Warren Buffett Just Made a Huge Call on The Stock Market

If there were a Mount Rushmore for investors, Warren Buffett’s face would be the first one carved into rock.

This is a guy who’s averaged 20% compound annual returns over the course of decades. His personal fortune is worth over $100 billion.

And it’d be worth over $250 billion if he didn’t already give away billions to charity. There’s nobody else like him.

So when Buffett makes calls on stocks or the market, people tend to listen. And it seems that he’s made a rather big call over the last few weeks.

Today, I want to tell you about the big call Warren Buffett is making on the stock market in April 2022. Ready? Let’s dig in.

Now, let me be clear. Warren Buffett didn’t grab a megaphone and scream out a market call to the world. He didn’t put up an advertisement in either Omaha or NYC. No interviews on CNBC. Instead, it’s what he’s done that’s so important. It’s not what he’s said. Actions speak louder than words, and his actions are screaming right now.

Warren Buffett has done a sudden U-turn and is now investing billions of dollars into stocks. 

A U-turn? That sounds a bit extreme. Isn’t Buffett always heavily invested in the market? Well, yes. In fact, he oversees a common stock portfolio within his conglomerate, Berkshire Hathaway, that has a market value of over $300 billion.

However, Buffett’s firm has also been carrying a ton of cash.

Berkshire Hathaway came into 2022 with about $150 billion in cash. That’s a new record for the firm. Why are they sitting on so much cash? Well, they have a terrific collection of businesses that all generate consistent cash flow for Berkshire Hathaway. But there’s a second part to that. Because Berkshire Hathaway has been so timid with investments over the last two years, the cash has piled up.

Indeed, Berkshire Hathaway has been a net seller of stocks over the last couple years.

Berkshire Hathaway did buy about $8 billion worth of stocks in 2021. But they sold about $16 billion worth. When you sell more than you buy, you’re a net seller. Now, that’s not factoring in Berkshire Hathaway’s own share buybacks, but you get the point here.

The point is that Berkshire Hathaway has been timid with investing throughout the pandemic.

And why wouldn’t they be? We’re talking about a once-in-a-century global health event. Now, we can look back and see that it maybe wasn’t the existential threat that it was initially made out to be. And not to toot my own horn, but I was aggressively investing throughout the last two years. But we have to remember that Berkshire Hathaway already has hundreds of billions of dollars wrapped up in stocks.

More importantly, Berkshire Hathaway is, at its core, heavily exposed to insurance operations.

As such, they have to operate somewhat conservatively with the cash. The fact that they invest so heavily in stocks in the first place is what makes them a bit of a unique specimen. So when a once-in-a-century event happens, and when you have insurance considerations, it’s reasonable to batten down the hatches and make sure cash is healthy.

But the hatches have been thrown wide open and Berkshire Hathaway is unloading cash on stocks.

That’s right. Let’s talk about what Buffett has been doing over just the last few weeks alone. His firm spent more than $7 billion in mid-March to suck up shares in Occidental Petroleum (OXY). It was announced on March 21st that Berkshire Hathaway would be acquiring specialty insurance company Alleghany Corporation (Y) for $11.6 billion. And then we found out on April 6th that Berkshire Hathaway had bought up an 11.4% stake in HP Inc. (HPQ) for about $4.2 billion.

We’re talking about more than $20 billion unloaded on stocks in a matter of just weeks.

Even by Warren Buffett’s standards, that’s a lot of cash to move in a short period of time. So what can we take away from this? Well, I think it says two things.

The first thing it says is that we’re moving into a more normal investing environment. 

The last two years have been anything but normal for investors. Buffett has been investing for eight decades. He’s seen almost everything. But he hasn’t invested during a global pandemic. And when Buffett is forced to sit back and see something new, that’s probably unnerving.

The pandemic caused massive dislocations. But with the world moving past the pandemic, we’re now entering back into a more predictable world where investing comes down to familiar issues like business results, valuations, economic cycles, geopolitics, etc. And I’m sure this makes Buffett much more comfortable.

The second thing it says is that Buffett isn’t concerned about the recession chatter. 

You know what chatter I’m talking about. Because the US Federal Reserve is having to aggressively raise rates in the face of a very hot inflation rate, there’s fear that the Fed will move too much and force the US into a recession in order to break the back of inflation.

But if Buffett were all that concerned about this, would he be spending more than $20 billion on stock? No way! He’s been patiently sitting on cash for years. What’s another 6-12 months? If he really thought these stocks would be available for much lower prices in the near future, he’d just wait and buy them then.

So what can us mere mortal retail investors take away from this?

Look, it’s easy to give in to all the negativity and hysteria. It’s easy to be a pessimist. It’s actually more difficult to be an optimist. However, I’ve found that with the way humanity continues to advance over time, optimists come out on top time and time again. I think what Buffett is saying through his actions is this: It’s perfectly okay to have a positive attitude toward stocks and the stock market right now in April 2022. However, I say that with two important caveats.

First, you have to stick to quality businesses. 

I’ll be honest here. This is always a caveat. I mean, it’s pretty straightforward. Invest in low-quality businesses, expect low-quality results. But this is a caveat that has to be emphasized right now. With so much going on – war in Europe, the world still coming out of a pandemic, inflation, the Fed, etc. – this is the time when you want to double down on quality.

Second, you have to keep a long-term time horizon.

Another caveat that’s always present. But, again, with so much going on, you have to be willing to see past all of the uncertainty and invest for the long term. Could a recession and ensuing market crash come in the next 6-12 months? Might Buffett be wrong and be timing it all incorrectly? Sure. That’s possible. But if you’re investing for the next 20, 30, 40 years, does it matter? Not really. And let’s get real. A recession will come at some point.

Recessions are a natural feature of our economic cycles. A market correction will come. So if you’re investing with the intention of never seeing a recession or a market correction, you may as well never invest. Besides, recessions and corrections are often the best times to invest. These are times when outrageous deals can be found and outstanding long-term returns can be forged.

I’m with Buffett on this one. I’m also aggressively investing in April 2022.

Of course, I’ve been aggressively investing over the last 1, 2, 5, and 10 years. And I’ll be aggressively investing for the next 1, 2, 5, and 10 years. I’m still in my 30s. I’m still accumulating high-quality dividend growth stocks for the long term. So if the market crashes and stocks get cheaper, I’ll be enthusiastically buying stocks even cheaper – just like I was doing in early 2020.

Meanwhile, like Buffett, I still see plenty of deals in the market right now. I’ll leave you with a pertinent quote by one of the other great investors of all time, Peter Lynch: “Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.”

— Jason Fieber

P.S. If you’d like access to my entire six-figure dividend growth stock portfolio, as well as stock trades I make with my own money, I’ve made all of that available exclusively through Patreon.