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I would do it better this time around than 20089 if something akin to that happened as the world gets more sophisticated complicated and intertwined more can go wrong we do do want to be able to act when it happens Warren Buffett has been selling huge amounts of his stock Holdings but instead of reinvesting it he's keeping the cash on the sidelines based on what he's seeing in the market so I want to show you what this looks like and then talk about why this is happening this is a chart of Warren buff stock Holdings in 2021 and this is how much money he held in cash at the time this was the largest amount of cash his company Berkshire hathway had ever held outside of stocks at $166 billion in cash but Buffett recently filed a new report showing his updated numbers for Burkshire and this is what that looks like for 2025 he is now holding 344 billion in cash more than a third of a trillion dollarss after selling over 175 billon ion dollar worth of stocks in recent years with Buffett warning that stocks today were effectively priced for nothing less than Perfection and if anything happened in the world that was less than perfect the stock market could drop the US markets extended their postelection losses today the bar is going to be really high for AI next year the sell off accelerated as the White House escalated its trade war with Canada Mexico and China over recent weeks so let's look at what Warren Buffett may be seeing in the current stock market that's causing him to sell his his stocks including an ominous warning he issued way back in 1999 before the crash that has some irrelevance to today and most importantly look at what actions investors can take today to protect ourselves if the market continues to drop so first off the new info that we've gotten on Buffett's trades so birkshire haway is always trading in and out of stocks but in recent years their selling has far outstripped their buying in 2024 alone we can see the company sold 100 34 billion more stock than they bought a huge increase from previous years and the cash that they produced isn't just going to pay Buffett's Hefty tax bill because we can see the company's cash position has soared in recent years to more than double their previous highest cash amount so when a big investor builds a big cash position sometimes is called holding dry powder money that Buffett once ready if he finds a stock at a good price but that begs the question for regular investors like you and me does Buffett really not see any stocks that are a good price right now and what does that mean for the rest of the market so this chart got my attention with this story this is a chart showing how many stock BuyBacks Berkshire completed dating back to 2022 a stock buyback is when a company uses the cash it's generating to buy its own shares usually because it thinks the Stock's price is undervalued and deserves to be HED well for the last quarter of 2024 those stock BuyBacks dropped to zero Buffett didn't think any of his companies were worth enough to deploy his cash into now Buffett doesn't do as much public speaking as he used to the man's 94 years old after all but he doesn't exactly need to shout it from the rooftops for investors to come to their own conclusions which is that Buffett thinks the stock market is overvalued and he's moving to cash so that he can buy those same stocks at a discount after they crash be fearful when others are greedy and only be greedy when others are fearful Buffett actually made that famous quote in a letter to Berkshire shareholders in 1986 a year before Black Monday kicked off the stock market crash of the 1980s and 13 years later in 1999 Burkshire successfully called another stock market crash by looking at the greed in the market and today famous investor Howard Mark has called out how that warning has some concerning parallels to today so the year is 1999 and the stock market is in one of the biggest bull runs in history not unlike the recent Bull Run that we've seen in stocks and Warren Buffett makes a public Proclamation that stocks would underperform over the next 17 years at the time it was the peak of the dot craze with companies like pets.com rising to insane valuations off the back of the internet craze so in this environment there was a whole new group of investors who hadn't ever lost money investing before everyone felt like a tech investing genius cuz they were all making money and they knew the internet would be the next big thing and so Technology's potential became more important to them than a Stock's actual valuation but Buffett disagreed with this approach saying investors these days are expecting far too much and that if he had to guess how the market would perform it would only average 6% over the next 17 years 4% if you account for inflation and if he was wrong the percent could be even lower and Howard marks brings up that today's market has some similarities to the market of 1999 we today have a lot of investors who made a lot of easy money betting on Tech trends like metaverse or growth or AI fun fact this study showed that funds that just put AI in their name literally made more money than similar funds without it in the name implying that at least some investors were investing by just following the trends now back in the late 90s the best performing stocks included companies like Amazon and Yahoo in fact Yahoo a search engine that didn't really make a ton of money became the most valuable company in the world at one point and this is because as Mark points out bubbles tend to originate from a new technological innovation because when a new technology comes out like the internet or maybe AI no one really knows how it should be valued and so people just bet on the idea and its potential investors were right that internet companies would go on to change the world they were just wrong that pets.com would be the ones to do it and Buffett saw all this back in 1999 and said that while stocks might temporarily trade on potential sometimes for a very long stretch sooner or later value counts and that bet that Buffett made that stocks would only return a 4% real return well after the dot bubble burst and the market lost 50% of its value overnight the stock market over the next 17 years averaged just a 25% return per year Buffett was right but with that context from 1999 let's look at Buffett's latest moves today so we can understand what to do as investors to protect ourselves in the next Market crash so there's a lot of noise in the Stock Investing space and with all the daily Market moves sometimes I just need to take a walk outside to get some quiet it's not that quiet luckily raycon reached out to sponsor this video and save my sanity so I've been using the everyday earbuds by rayc coner about a month now and their active noise cancellation and 32-hour battery life lets me just pop them in when I need some peace and quiet while getting premium audio wherever I go and if I need to I can turn on awareness mode to get audio pass through of my environment I really appreciate their multi-point connectivity so I can connect to both my phone and my computer and switch between them without needing to repair the Bluetooth and so after raycon sent these to me I ended up using them pretty much every day when I go for walks it's really nice to just not worry about the battery life and the fact that they aren't just black and white like most of my old earbuds makes them easier to keep track of so to support the channel go to by ron.com to get 20% off the bestselling everyday earbuds brought to to you by raycon and now let's see what Buffett is seeing in today's market that Echoes the market in 1999 so since for Buffett valuation is everything let's look at what the numbers are telling us about the stock market so the S&P 500 a basket of the 500 biggest companies in the US has been dropping recently and the tech Focus NASDAQ has officially entered correction territory and while the trigger for this drop could be a lot of things the US's new tariff policies inflation or Waning AI demand I want to zoom out one level to understand is the market going to continue to drop from here so it's no secret that the stock market has been on a multi-year bull run with the S&P 500 hitting 50 all-time highs in 2024 alone and the index sitting at an average PE ratio of just under 30 in 2025 so the PE Ratio is a measure of how much profit a company is bringing in relative to its stock price and it's a way for investors to understand how it expensive a stock is but if you average all the PE ratios across the entire Market you can get an estimate for how expensive the entire Market is relative to normal and the average PE ratio for the market right now is pretty expensive the PE ratio of the S&P 500 has risen 45% from May 2022 which was the last time that Warren Buffett was buying more than he was selling now part of this rise can be explained by companies today making more money than before so when companies like Nvidia keep on making more money they cause the overall Market to rise but this increasing metric can also happen when the market is in a bubble but what we're seeing today with the S&P 500 is especially unusual since the index's rise is masking the real trends that have been driving its gains see in recent years the S&P 500 has become more and more concentrated in just a few stocks it's like a boat being rode by just one or two people while the rest sit back and enjoy the ride and if that one person wasn't doing everything the boat would probably just stagnate Apple Amazon Nvidia Google Tesla Microsoft and meta these seven technology stocks are some of the biggest companies in the market and collectively they've become known as The Magnificent Seven they've earned this name because these stocks collectively have risen over 70% in the past 2 years and collectively they now make up more than onethird of the entire value of the S&P 500 this concentration where only a few stocks are driving most of the value explains why the stock market seemed to keep on marching higher and higher while consumers felt a lot of pain in the economy and that concentration risk may be acting as a sort of kindling that is Catching Fire in the market right now so remember those investors back in 1999 who had never lost money on stocks and they just kept on bidding up the market higher and higher well when those new investors panic and start to sell everything it can drag down the entire Market not just the tech stocks that they were buying so so the concern is that the entire market right now is like a house of cards built on Tech it's kind of sort of stable if you don't touch it but it's vulnerable to collapsing if something pushes on it and that's not something that a value investor like Warren Buffett likes to see especially given all the pressures the market is seeing right now okay but if that's what Warren Buffett is worried about what can we do as regular investors to protect ourselves so first off if we knew for sure that the market was going to crash for further from here which we don't at this point we would have two options in front of us number one would be to short the market basically Go full Michael bur from The Big Short and bet that the market will drop I think we can probably cross this option off the list because this is an extremely aggressive strategy that can easily lose all your money see shorting the market requires both that the market drops and that it drops when you think it will even Michael bu one of the most famous short investors ever ran into trouble when it took 3 years years from the time he first started investigating the housing bubble in 2005 to when it finally collapsed in 2008 he almost lost all of his money when his funds investors revolted and tried to pull their money out early so unless you're a hedge fund with millions in the bank a long-term short against the market is almost never worth it since on average the market does go up a famous economist once said the market can remain irrational longer than you can remain solvent and with shorts you can correctly predict a market crash and still end up losing money which leaves us with the second option moving some or all of our money out of stocks and Into Cash like Warren Buffett this has some potential benefits since it seems like it would protect us from the worst of a market crash and give us some dry powder to buy back cheap stocks later on but let's compare the two most extreme versions of this holding as if nothing is happening or selling and trying to buy back in at the market bottom how well have these two strategies worked in the past well a meril Lynch study compared two groups of investors from 1989 through 2018 one group tried to actively time the market looking for things like all-time highs potential Market crashes and just generally trying to buy low and sell High the other group just passively invested in the S&P 500 and this study found that a person who invested $1,000 in 1989 and did nothing else would have had over $117,000 by 2018 but if someone were to invest invest $1,000 in 1989 and try to time the market and they were to miss just the top 10 highest performing months in that period they would have had just $77,000 in 2018 less than half of the passive group and if you missed the top 20 months you would be down to just over $3,000 they repeated the study from 1999 and from 2009 to 2018 and both had the same results Market timers lost to consistent investors and what that means is even if you sell at the perfect time before a crash if you're at all late to buy back in you still lose timing the market versus consistently investing but what about Warren Buffett keeping all his cash on the sidelines well while it's tempting to copy Warren Buffett I always have to remind myself that he is playing a different game than me as an average investor because if Warren wants to buy some new stocks he has to sell existing stocks he doesn't have that much new money coming in but if you're just a working age adult which statistically most people watching are you can take a piece of your income every month and put it into the market we don't have to sell a stock to buy something else because we generally get new dry powder new money that we can invest each month this is a concept called dollar cost averaging which I covered in more detail in my video on exactly how I would invest if I were just getting started so here's how the numbers work out for someone who keeps on adding money to the market during a market crash if you had horrible timing and you only invested in the market on days that were all-time highs over the past 70 years so you're only buying the Peaks on average you would have made an 11% return within one year and if you extend that out to 5 years you would have averaged 10.3% per year so even if you had the worst timing imaginable and you only bought at Market Peaks consistently buying into the market would have still made you money nearly 70% of the time without needing to hold a ton of cash and as for Buffett's cash position while it is extremely large relative to his entire Burkshire portfolio it actually isn't that much higher than it's been on average since 2003 berkshire's just grown so much that the numbers look really big but by percentage it's not that much of an outlier so here are the three things that I'll be doing to protect myself from a market crash number one I'll keep buying into the market every month since it's statistically the most effective way to invest number two I won't invest any money that I need for the next 5 years I don't want to be forced to sell during a market dip and the statistics we're using only work over a long time period and number three I'll be careful to always focus on the long term Market crashes are scary when they're happening but in hindsight they always look like a small blip in the rise of the market so play it safe keep buying don't panic and I'll keep you up to date with daily updates over on Instagram I'm going to try something that I'm probably going to regret but for the month of March I will be answering Instagram DMS from everyone who follows and messages me through the end of the month it's not going to be AI or automated at all I just want to get a better sense of what you're all feeling about the market maybe stocks that you're buying and what you'd like to see in future videos and YouTube recommends that you watch this video next
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