Does Warren Buffett Know Something That We Don’t?

When the world’s most-followed investor doesn’t feel comfortable investing, should the rest of us be worried?

Warren Buffett , who has quipped that his favourite holding period for a stock is “forever,” continues to have substantial money at work in American companies. But he has never taken this much off the table either—a whopping $325 billion in cash and equivalents, mostly in the form of Treasury bills.

To appreciate the immensity of that hoard, consider that it would allow Berkshire to write a check, with change left over, for all but the 25 or so most-valuable listed U.S. corporations—iconic ones such as Walt Disney, Goldman Sachs , Pfizer, General Electric or AT&T. In addition to letting the dividends and interest pile up on its balance sheet, the conglomerate has aggressively sold down two of its largest shareholdings, Apple and Bank of America, in the past several months. And, for the first time in six years, it has stopped buying more of the stock it knows best— Berkshire Hathaway.

Does that mean mere investing mortals should be cautious about the market? Maybe, but it tells us even more about Berkshire.

Buffett and his late business partner Charlie Munger didn’t outperform the stock market 140-fold by being market-timers. Probably Munger’s most famous quote is his first rule of compounding: “Never interrupt it unnecessarily.” Investors who follow Berkshire closely and hope for a bit of its magic to rub off on their portfolios pay very close attention to what it is buying and selling, but much less to when.

Yet the seemingly always optimistic and patient Buffett has turned cautious before, famously shutting his extremely successful partnership in 1969 when he said markets were too frothy and also building up substantial cash in the years leading up to the global financial crisis—money he deployed opportunistically.

“He’s cognisant of the fact that markets gyrate and go to extremes,” says Adam J. Mead, a New Hampshire money manager and Buffetologist who is the author of “The Complete Financial History of Berkshire Hathaway.”

Stock values being stretched doesn’t mean they are on the precipice of a crash or even a bear market. Instead, zoom out and look at what today’s valuations say about returns over the next several years, which will include both good and bad periods. Goldman Sachs strategist David Kostin predicted recently that the S&P 500’s return over the next decade would average just 3% a year—less than a third of the postwar pace.

Kostin’s report went over like a record scratch at a time of high investor optimism, but it is consistent with other forecasts. Giant asset manager Vanguard recently predicted an annual return range of 3% to 5% for large U.S. stocks and just 0.1% to 2.1% for growth stocks over a decade. And Prof. Robert Shiller ’s cyclically adjusted price-to-earnings ratio is consistent with an average return of about 0.5% a year after inflation —similar to Kostin’s projection.

Then there is the even simpler “Buffett Indicator,” which the Oracle of Omaha once called “probably the best single measure of where valuations stand at any given moment.” There are variants on the theme, but it is basically a ratio of all listed stocks to the size of the U.S. economy. Taking the Wilshire 5000 Index as a proxy it is now around 200%, which would leave it more stretched than at the peak of the tech bubble.

With T-bills now yielding more than the prospective return on stocks, it might seem that Buffett has taken as many chips off of the table as possible since there is no upside in risky stocks. But he is on record saying that he would love to spend it.

“What we’d really like to do is buy great businesses,” he said at Berkshire’s 2023 annual meeting. “If we could buy a company for $50 billion or $75 billion, $100 billion, we could do it.”

With Berkshire now worth $1 trillion, it would take a deal of that size to move the needle. Mead explains that a transaction matching acquisitions like 2010’s Burlington Northern Santa Fe deal or the 1998 acquisition of insurer General Re would be worth $100 billion scaled to today’s balance sheet.

Could it also mean that Buffett sees value in keeping dry powder ahead of the next crisis or general froth in the market? Yes, but he isn’t saying, and individual investors also have more options than he does. First of all, we don’t have to pay a 20% or more premium to the market price to invest in a business like Berkshire would in a takeover. We also can sail in much shallower waters and smaller ponds. For example, Vanguard’s 10-year projections range from 7% to 9% a year for non-U.S. developed market stocks and 5% to 7% for U.S. small capitalisation stocks. Other than a very profitable bet on Japanese trading companies in recent years, though, Buffett has kept his money mostly stateside and likely will continue to do so.

Changes at Berkshire are inevitable, though—and not just because the 94-year-old is nearing the end of his remarkable career. Buffett hasn’t hesitated to return cash to shareholders, almost exclusively through stock buybacks, yet he clearly deems even his own stock too pricey for that.

Berkshire also has reached a size at which it can’t replicate its long-run record of deploying its profits and handily beating the market. It is going to have to hand money back somehow—probably through a dividend, reckons Mead. Eventually it becomes necessary to interrupt compounding.

While golden visa schemes proliferate, Switzerland remains famously protective about buying property in the country.

Rules known as Lex Koller, introduced in 1983, prohibit foreigners from buying homes in cities like Geneva and Zurich. And in the few locations where foreigners can buy, purchase permits come with rules around size and occupancy.

But non-Swiss buyers who have coveted an Alpine home now have a pathway to ownership, and it’s likely to come with financial upside. The Swiss government has waived residency requirements in a handful of locations where developers have negotiated exemptions in exchange for billions of dollars of investment in construction and improvements.

Andermatt, a village 4,715 feet above sea level in the centre of the Swiss Alps, is the largest municipality to open up to foreign buyers.

Its main investor, Egyptian magnate Samih Sawiris, “believed Andermatt could become a full-town redevelopment when he first visited in 2005, but the key was to offer real estate to people outside of Switzerland,” said Russell Collins, chief commercial officer of Andermatt-Swiss Alps, Sawiris’s development company.

“We became the only large-scale real estate development in Switzerland with an exemption from the Lex Koller regulations.”

In the ensuing decades, Andermatt has become a major draw for high-net-worth buyers from around the world, said Alex Koch de Gooreynd, a partner at Knight Frank in London and head of its Swiss residential sales team.

“What the Andermatt-Swiss Alps guys have done is incredible,” he said. “It’s an impressive resort, and there is still a good 10 years’ worth of construction to come. The future of the resort is very good.”

Andermatt’s profile got another boost from the 2022 acquisition of its ski and resort operations by Vail Resorts, which runs 41 ski destinations worldwide.

“Vail has committed to 150 million Swiss francs (US$175 million) in investments, which is another game-changer,” de Gooreynd said.

“If you’d asked me about Andermatt 10 years ago, I would have said the ski areas weren’t good enough of a draw.”

Along with the five-star Chedi Andermatt hotel and residences, which opened in 2013, residential offerings include the Gotthard Residences at the Radisson Blu hotel; at least six branded residences are planned to open by 2030, according to Jeremy Rollason, director for France, Switzerland, and Austria at Savills Ski.

“Most of these are niche, boutique buildings with anywhere from eight to 14 units, and they’re releasing them selectively to create interest and demand, which has been a very successful approach,” he said.

“Andermatt is an emerging destination, and an intelligent buy. Many buyers haven’t heard of it, but it’s about building a brand to the level of Verbier, Courchevel or Gstaad.”

The Alpinist, Andermatt’s third hotel residence, is slated to open in 2027; with 164 apartments, the five-star project will be run by Andermatt-Swiss Alps, according to Collins.

Other developments include Tova, an 18-unit project designed by Norwegian architects Snohetta, and La Foret, an 18-apartment building conceived by Swiss architects Brandenberger Kloter.

Prices in Andermatt’s new buildings range from around 1.35 million francs for a one-bedroom apartment to as much as 3.5 million francs for a two-bedroom unit, according to Astrid Josuran, an agent with Zurich Sotheby’s International Realty.

Penthouses with four or more bedrooms average 5 million-6 million francs. “Property values have been increasing steadily, with an average annual growth rate of 7.7% in the last 10 years,” she said.

“New developments will continue for the next 10 years, after which supply will be limited.”

Foreign buyers can obtain mortgages from Swiss banks, where current rates hover around 1.5% “and are declining,” Josuran said.

Compared to other countries with Alpine resorts, Switzerland also offers tax advantages, said Rollason of Savills. “France has a wealth tax on property wealth, which can become quite penal if you own $4 million or $5 million worth of property,” he said.

Andermatt’s high-end lifestyle has enhanced its appeal, said Collins of Andermatt-Swiss Alps.

“We have three Michelin-starred restaurants, and we want to create a culinary hub here,” he said. “We’ve redeveloped the main shopping promenade, Furkagasse, with 20 new retail and culinary outlets.

And there is a unique international community developing. While half our owners are Swiss, we have British, Italian and German buyers, and we are seeing inquiries from the U.S.”

But Andermatt is not the only Swiss location to cut red tape for foreign buyers.

The much smaller Samnaun resort, between Davos and Innsbruck, Austria, “is zoned so we can sell to foreigners,” said Thomas Joyce of Alpine property specialist Pure International.

“It’s high-altitude, with good restaurants and offers low property taxes of the Graubunden canton where it’s located.”

At the Edge, a new 22-apartment project by a Dutch developer, prices range from 12,000-13,500 francs per square metre, he said.

As Andermatt’s stature grows, this is a strategic time for foreigners to invest, said Josuran of Sotheby’s.

“It might be under the radar now, but it’s rapidly growing, and already among Switzerland’s most attractive ski locations,” she said. “Now’s the time to buy, before it reaches the status of a St. Moritz or Zermatt.”

Does Warren Buffett Know Something That We Don’t?

Berkshire Hathaway is hoarding cash in a pattern seen before the financial crisis, but it has a new reason this time

The government in Switzerland has waived residency requirements in a handful of locations, including one that’s growing fast.