Recently, the investment strategy of Warren Buffett, a world-renowned investor, has again attracted attention. The head of Berkshire Hathaway is hoarding huge amounts of cash, a behavior reminiscent of the situation before the global financial crisis in 2008. At that time, Buffett used a large amount of cash reserves to wait for opportunities during market turmoil, and now he is accumulating unprecedented huge cash reserves. What prompted Buffett to choose this seemingly "conservative" strategy? Is it to prepare for potential market turmoil in the future, or to reserve development space for the company's successor? This move is full of intriguing secret information.

Berkshire's "Mountain of Cash" and Apple's Decision to Reduce Holdings

As of the latest financial report, Berkshire's cash and equivalents reached an astonishing level of US$325.2 billion. This is the highest cash reserve since 1990, which is theoretically enough to buy all listed companies outside the top 25 in the United States by market value. Against this background, Buffett chose to reduce his holdings of Apple, the most profitable stock in investment history, and stopped buying back Berkshire's shares for the first time. Analysts pointed out that Buffett may have reduced his holdings in Apple because its price-to-earnings ratio is high and the stock price seems to have been out of touch with the company's actual profitability. In addition, Apple's heavy investment in artificial intelligence and the fact that its profit growth prospects are no longer as stable as in the past may have further exacerbated Buffett's concerns.

Conservative response to high market valuations and bear market expectations

Some of Buffett's investment decisions can also be seen as a warning against high market valuations. As major stock indices such as the S&P 500 and Nasdaq rose rapidly after Trump's victory, investor optimism was high. However, Nicholas Colas, co-founder of DataTrek Research, said that Buffett may think that some stocks, including Berkshire, are overvalued and may face deep adjustments or even bear markets in the future. Therefore, Buffett chose to reduce some positions and maintain flexible cash flow to cope with potential market fluctuations.

Successor strategy: Paving the way for the future?

In addition to guarding against market risks, some industry insiders speculate that Buffett's move may be to prepare for his successor. Buffett, 94, may be about to withdraw from active investment management and gradually hand over the investment management of Berkshire to his successor Greg Abel. To this end, Buffett may want to leave enough cash resources so that Abel can more flexibly implement new investment strategies after he officially takes over and re-evaluate the company's stock repurchase plan. Such a move also allows Abel to reshape Berkshire's investment portfolio according to his own ideas, thereby achieving a smooth transition.

Pessimistic expectations for future market returns

Even with the recent surge in the stock market, some analysts are more pessimistic about the returns in the next decade. David Kostin, Goldman Sachs' chief U.S. equity strategist, has predicted that the average annual return of the S&P 500 index in the next decade may be only 3%, compared with 13% in the past decade. Vanguard Group's analysis also believes that the average annual return of large-cap U.S. stocks will fall to 3% to 5%, and the return of growth stocks will be even lower, only between 0.1% and 2.1%.

These predictions highlight another meaning of Buffett's choice to hoard cash. As a long-term investor, he knows the importance of holding sufficient cash when the market is turbulent or a bear market comes. This not only provides protection for future investment opportunities, but also protects the company's funds when the rate of return declines.

Keeping "ammunition": waiting for opportunities or preparing for a rainy day?

Buffett has repeatedly expressed the difficulty of finding investment opportunities in the market, which may be an important reason why he continues to increase his cash reserves. By hoarding cash, he can make strategic investments in future market fluctuations or downturns. Even if the market environment is not as favorable as in the past, he still has sufficient "ammunition" to deal with various emergencies and is ready to act decisively when the right opportunity arises.

In summary, Buffett's strategy of cashing out and hoarding cash may have multiple purposes, such as dealing with market risks, paving the way for successors, and waiting for opportunities. Faced with the current uncertain market environment, this sophisticated investor seems to be ready to deal with all possible changes.