Warren Buffett's Subtle and Not-So-Subtle Warnings for Wall Street: What Investors Should Do As 2025 Approaches

I doubt Warren Buffett talks with Wall Street analysts very much. He certainly doesn't interact with them as much as most CEOs of publicly traded companies do. Unlike most S&P 500 companies, Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) doesn't have quarterly earnings conference calls.

However, I think Buffett is nonetheless sending signals to Wall Street through his actions. One of those signals is subtle, while the other isn't so subtle.

Image source: The Motley Fool.

Buffett's subtle warning

Most companies don't trumpet what they're not doing. Berkshire Hathaway is no exception. You have to pay attention to notice when the conglomerate isn't doing something it typically does.

There was something at least somewhat unusual in Berkshire's 10-Q filing for the third quarter of 2024. The company mentioned that it had completed $2.9 billion of stock buybacks in the first nine months of the year. But that was the same amount of repurchases Berkshire revealed in its Q2 filing. Buffett decided against buying back Berkshire shares in Q3.

Berkshire's standing policy is that Buffett can buy back shares any time he believes the share price is below Berkshire's intrinsic value. The only caveat is that the company's cash, cash equivalents, and U.S. Treasury Bill holdings can't drop below $30 billion. Buffett has opted in favor of stock buybacks in every quarter since the third quarter of 2018 -- until now.

BRK.B Stock Buybacks (Quarterly) data by YCharts

What is the legendary investor's subtle warning to Wall Street in this case? Buffett thinks stock valuations are too high, even Berkshire Hathaway's.

Buffett's not-so-subtle warning

Every public company must report its key financial results each quarter. Investors primarily focus on revenue and earnings, of course. Another key financial metric, though, is the company's cash position.

Berkshire Hathaway's cash position is especially important. Why? The company owns a large equity portfolio. When Berkshire has a lot of cash, it means Buffett can't find many businesses to invest in (whether in whole via acquisitions or in part via stock purchases).

You've probably figured out where I'm going here. Berkshire's cash position, including cash, cash equivalents, and U.S. Treasuries, stood at a staggering $325.2 billion at the end of the third quarter. This total was by far the largest cash stockpile in the company's history.

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

In his 2021 annual letter to Berkshire shareholders, Buffett wrote, "Berkshire's current 80%-or-so position in businesses is a consequence of my failure to find entire companies or small portions thereof (that is, marketable stocks) which meet our criteria for long term holding." He added that he and his longtime business partner, the late Charlie Munger, had "endured similar cash-heavy positions from time to time in the past" but those periods were "never pleasant."

Here's the kicker: Berkshire's cash position at the end of 2021 was roughly 45% the size of its current cash position. Buffett's not-so-subtle warning with this record cash hoard is the same as his subtle warning. He believes stocks are too expensive.

What should investors do?

Many investors take a hard look at their investments as the year draws to a close. That makes sense, especially for minimizing taxes. What should investors do as 2025 approaches in light of Buffett's warnings to Wall Street? I think the best approach is the one Buffett himself is taking.

First, don't panic and sell all your stocks. Although Buffett has been a net seller of stocks for eight consecutive quarters, Berkshire still has a huge stock portfolio worth roughly $1.1 trillion.

Second, do sell any stocks for which you don't have a high conviction. You might even consider trimming your positions in stocks that have become too big of a percentage of your total portfolio than you're comfortable with. For example, Buffett has sold big chunks of Berkshire's stake in Apple, which in the past approached half of the conglomerate's portfolio.

Third, build your cash stockpile. You don't necessarily have to go full-bore as Buffett has but having more cash on hand when stock valuations are frothy is wise.

Fourth, continue buying stocks of great companies that trade at reasonable valuations. Despite his subtle and not-so-subtle warnings about sky-high stock prices, Buffett is still finding a few stocks to buy that meet his criteria. You probably can, too.

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Keith Speights has positions in Apple and Berkshire Hathaway. The Motley Fool has positions in and recommends Apple and Berkshire Hathaway. The Motley Fool has a disclosure policy.