When a crisis hits, investors will start to sell off their most leveraged positions first.
When that isn’t enough, they sell off the core holdings they thought they’d have forever.
And when that isn’t enough, anything that isn’t nailed down goes too.
The final stage of a market selloff is when assets that have been holding up relatively well such as gold also start to tank.
The key to coming out ahead? Lean against the markets. When stocks are soaring, raise cash. You’ll feel a lot better when the fear hits – since you’ll have less to lose.
That’s the approach that’s worked well for Berkshire Hathaway, which now holds over 30% of its investment portoflio in cash:
Berkshire Hathaway now sits on its highest cash levels ever.
Markets haven’t liked the stock since Warren Buffett announced his retirement at the annual meeting. In the past 90 days, shares have dropped nearly 15% from all-time highs.
With a 30% cash position, however, Buffett and his successor Greg Abel, are in a position to buy up entire companies without having to issue debt.
Until they do, that cash, mostly invested in short-term Treasury bills, will earn over 4% per year, still higher than inflation.
And with market valuations well over the “Buffett indicator” for greed, measuring a stock market valued at 207.4% of GDP, a record high, the market is ripe for a strong pullback.
~ Addison
P.S. We see continued market volatility as part of President Trump’s Great Reset plan. And Trump may be willing to rattle markets again, following the rise of the TACO – Trump Always Chickens Out – mentality prevailing on Wall Street.
Stay tuned for more volatility – and make sure you have enough cash so you can sleep soundly through a big pullback – and have cash to put to work later on.
That doesn’t mean sell everything – a 30% cash position means Buffett is still 70% invested. But now’s now the time to be all-in. And you can even use put options to profit from a quick swing lower, as we’ll be doing in a trade for members of the Grey Swan Trading Fraternity later today.
As always, your reader feedback is welcome: feedback@greyswanfraternity.
