Is Warren Buffett Worried About a Recession? History Offers a Clue for What Berkshire May Really Be Thinking About Right Now.

After posting double-digit gains during both 2023 and 2024, the S&P 500 and Nasdaq Composite have gotten off to an underwhelming start this year. As of this writing, the S&P 500 is down 3% on the year while the tech-heavy Nasdaq index has fallen by a more pronounced 7%.

A combination of new tariff policies, cryptic rhetoric out of the Federal Reserve, and mixed economic indicators have investors experiencing a high degree of unwanted uncertainty. During times like these, a good strategy could be to see what Wall Street's brightest minds are doing.

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One of the best investors I can think of to study is Berkshire Hathaway (NYSE: BRK.B) (NYSE: BRK.A) CEO Warren Buffett. Buffett's consistent market-beating returns over the last several decades have turned him into an icon in the investment community.

I recently took a peek at Berkshire's year-end 2024 financial report and noticed something interesting. As of Dec. 31, Berkshire's balance sheet held $334.2 billion in cash and short-term investments -- the most in the company's history. Is Berkshire's cash stockpile a hint that Buffett and his team could be worried about a recession?

Let's take a look at Berkshire's prior moves during uncertain economic periods to help assess what Buffett and his team might be thinking about right now.

Analyzing Berkshire's moves during prior recessions in recent history

The chart below illustrates trends in Berkshire's cash and equivalents balance over the last 25 years. I've annotated these trends with U.S. recessions, which are depicted by the grey shaded columns.

BRK.B Cash and Short Term Investments (Quarterly) data by YCharts

Over the last two decades, major recessions in the U.S. include the dot-com recession and the Great Recession between 2008 and 2009. In addition, there was an extremely short-lived recession during the early months of 2020 -- coinciding with the beginning of the COVID-19 pandemic. Let's take a look at Berkshire's moves during these periods.

Leading up to the dot-com crash in the early 2000s, the trends above indicate that Berkshire was bolstering its cash position. However, following the inception of the dot-com recession in 2001, the line depicting Berkshire's cash balance begins to decline. To me, this signals the company started to deploy its cash as the market sold off.

According to Berkshire's shareholder letter from 2001, the company focused on acquisitions as opposed to specific stock picks. For example, Buffett references Berkshire's acquisitions of several manufacturing businesses including Shaw Industries, Johns Manville, XTRA, and MiTek.

Berkshire appears to have replicated its strategy of aggressive investing during the Great Recession. As the chart above shows, Berkshire's cash balance dropped considerably where the second (middle) grey column is shown. Per the company's filings, Berkshire invested in Goldman Sachs and General Electric during this period. Neither of these are particularly surprising picks. After all, two of Buffett's longtime preferences have been to invest in financial services (i.e., banks like Goldman) and the American economy (GE representing one of the most iconic American brands).

Image source: The Motley Fool.

Back in 2023, Buffett referred to activity in the stock market as "casino-like behavior." Perhaps this mindset is driving Berkshire's decision to bolster its cash balance -- which it's been doing for a few years now.

How I interpret Berkshire's strategy in recessions and what it's doing right now

One of Buffett's most famous philosophies is that investors should be greedy when others are fearful and vice versa. I think the trends explored in the prior section really underscore this mindset. During periods of heavy selling throughout the dot-com recession and financial crisis, Berkshire took advantage of depressed valuations. In other words, the company was being greedy.

However, over the last few years the stock market has been fueled to new heights thanks largely to unparalleled optimism in the technology sector given the rise of artificial intelligence (AI). As a result, stock prices have become disconnected from underlying financial results for many businesses -- making it increasingly harder to find reasonable valuations.

As you can see, Berkshire hasn't made much in the way of meaningful new additions to its portfolio -- instead choosing to stockpile cash and buy Treasury bills. In other words, the company is exercising some caution while the majority of investors remain greedy.

If the analysis explored in this piece makes one thing clear, it's that Buffett and Berkshire as a whole don't chase momentum. To me, the company's decision to bolster its cash balance isn't a signal that Buffett is wary of a recession, per se.

Rather, I think he simply doesn't see much in the way of attractive valuations at the moment and is proactively choosing to make a modest return on Treasuries to generate some easy cash as opposed to buying into an inflated stock market.

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Adam Spatacco has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway and Goldman Sachs Group. The Motley Fool has a disclosure policy.