It could pay to listen to Warren Buffett. The legendary investor has weathered multiple market cycles while generating market-beating returns for his investors for nearly 75 years. What does Buffett say now? Well, the investor has become quite a recluse lately (I don’t blame him; he’s 94 years old). The next time we’ll likely hear from Buffett will be in his annual letter to shareholders and annual meeting Berkshire Hathaway(NYSE: BRK.A)(NYSE: BRC.B) investors this spring.
What we can do today is take a look at Buffett’s actions with Berkshire Hathaway’s invested assets. Right now, there’s one measure that stands out above the rest: the company’s massive cash pile. At the end of the third quarter, Berkshire Hathaway had $325 billion in cash and cash equivalents on its balance sheet. Funds were raised through internal profit generation and sales of winning investments such as apple.
Buffett is not necessarily calling for a stock market peak. The man has repeatedly said that when he has excess cash, it is not because he thinks the market will collapse immediately. However, this means that he is unable to find stocks that he feels comfortable investing in at current prices, which suggests that there may be some excesses in the market at the moment. The last time Berkshire Hathaway’s cash pile rose this quickly was before the dot-com bubble collapsed.
You don’t need to sell everything and go into cash just because Buffett has a record pile of cash. However, you can listen to Buffett’s advice and act rationally when the market has animal spirits. Here are three things Buffett likely wants investors to do in 2025 as markets approach all-time highs.
Many reading this will have had fantastic returns on stocks in the last few years. I bet some of you are up over 100% in 2023 and 2024. These returns may lead to more aggressive thinking. Shouldn’t I strike while the iron is hot?
One way to do this is to add leverage to the portfolio or place your stocks on margin. Margin can be achieved by investing in exchange-traded funds (ETFs) that use borrowed money to generate returns or by taking out a loan from your brokerage account. In good times, this can generate tremendous returns. the 3x Leverage Nasdaq-100 ETF By 367% since the beginning of 2023 compared to 92% for the old regular Nasdaq-100 ETF With no leverage.
Buffett — as well as his late partner Charlie Munger — recommend avoiding leverage at all costs in your investment portfolio. Why? Because when the market turns (which it inevitably will sometimes), the downside can kill you. The leveraged Nasdaq ETF went into a massive drawdown in 2022, and that was just one year of bad returns.
Investors with highly leveraged portfolios can have their entire wealth evaporate in major bear markets such as the Great Recession or the bursting of the dot-com bubble. Don’t let that happen to you.
Hyper-growth stocks, e.g Nvidia and Palantir TechnologiesThey’ve been big winners the last few years. They may hold large positions in your portfolio now. That doesn’t mean they’re good buys in 2025. Buffett isn’t opposed to holding on to a large gainer that’s overvalued to avoid taxes, which he’s done before with… coca cola. He never buys shares from a price-to-earnings ratio (nosebleed)Price/earnings), though.
Most investors will have new cash they can deposit into their brokerage accounts throughout 2025. When you use this new cash, it will pay off in the long run to not chase hyper-growth winners who trade at ridiculous valuations but instead look for value stocks. It may be more difficult with the S&P 500’s average P/E approaching an all-time high, but there is value to be had.
Take even one of the largest companies in the world, alphabet(NASDAQ:GOG). The tech giant is trading at a P/E of 26 with a huge runway for growth still ahead of it. Unlike other artificial intelligence (AI) stocks, Alphabet stock is trading at a reasonable valuation right now and could be a good buy for your portfolio in 2025.
When making recommendations to individuals, Buffett preaches the benefits of sound diversification. This means not only spreading your investments across several stocks, but also making sure you’re not concentrated in one sector.
After the monster returns in 2023 and 2024, I bet some of you have significant exposure to AI, software, and technology stocks. Even if you own 10 different stocks in that sector, they will likely trade side by side. If the sector turns, your portfolio could see a significant decline.
Make sure you don’t have too much exposure to a single stock, topic or market factor when investing in 2025. This will pay off by preserving your wealth (as well as your peace of mind) over the long term.
Have you ever felt like you’ve missed out on your most successful stock buying journey? Then you’ll want to hear this.
On rare occasions, our team of expert analysts issues a “Double bottom” stock. Recommendation of companies they think are about to emerge. If you’re worried about missing your opportunity to actually invest, now is the best time to buy before it’s too late. The numbers speak for themselves:
Nvidia:If you invested $1,000 when we doubled your money in 2009,You will have $357,084!*
apple: If you invested $1,000 when we doubled your money in 2008, You will have $43,554!*
Netflix: If you invested $1,000 when we doubled your money in 2004, You will have $462,766!*
We are currently issuing “double” alerts for three amazing companies, and there may not be another opportunity like this anytime soon.
Susan Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Brett Schiffer He has positions in the alphabet. The Motley Fool has positions in and recommends Alphabet, Apple, Berkshire Hathaway, Nvidia, and Palantir Technologies. The Motley Fool has Disclosure policy.
