Is Cash King at Berkshire Hathaway? Buffett's Indicator is Too High, Making a 5% Risk-Free Return with U.S. Bonds

Warren Buffett, the legendary investor known as the "Oracle of Omaha," and his investment company Berkshire Hathaway reached a new record high in cash and U.S. Treasury holdings in the second quarter, totaling $276.9 billion. Of this amount, $234.6 billion is in short-term U.S. Treasury bills. In the current volatile stock market environment, the risk-free assets with a dividend yield of over 5% indeed provide a sense of security!

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Risk-Free U.S. Treasury Yield Exceeds 5%

Although Berkshire Hathaway's cash position reached a record $277 billion in the second quarter, $234.6 billion of it is in short-term U.S. Treasury bonds, a significant increase from $129.6 billion last year.

U.S. bonds are considered risk-free assets, yet their returns post-2023 are surprisingly high! The current market rate is 5.025%. Therefore, while Berkshire Hathaway is loaded with "cash," on its financial statements, it's listed as "cash equivalents," still bringing in substantial profits for the company!

Buffett Indicator at Historically High Levels

Warren Buffett, at 94 years old, remains cautious with his investments. During Berkshire Hathaway's annual shareholder meeting in May, he expressed willingness to invest but also emphasized the difficulty of finding attractive investment opportunities.

The "Oracle of Omaha" mentioned in a Forbes interview in December 2001 that the ratio of total market capitalization to GDP can be used to determine whether the overall stock market is overvalued or undervalued, hence dubbed the Buffett Indicator. This indicator can gauge whether the current financial market is reasonably reflecting fundamentals, with Buffett's theoretical range indicating 75% to 90% as reasonable and over 120% as overvalued. According to Financial M Square's chart, the Buffett Indicator has been at high levels since 2016, currently at 181%.

This also explains why Berkshire Hathaway's cash reserves have continued to rise in recent years, even expanding investments to Japan!

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Top Holders of U.S. Bonds, Berkshire Hathaway Slightly Below Taiwan

According to data as of the end of April from Statista, the ranking of countries holding the most U.S. bonds is as follows: Japan ranks first with $1.15 trillion, China is second with $770.7 billion, and Taiwan also makes the list, holding $257.3 billion in U.S. bonds, ranking twelfth.

Berkshire Hathaway's $234.6 billion is slightly below Taiwan's holdings, and in comparison, Tether's $97.6 billion is a drop in the bucket!