Referred to as the Oracle of Omaha, Warren Buffett is perhaps the most famous investor on the planet. He’s been written about in textbooks, featured in movies and discussed across the internet.
His fame is derived from his uncanny ability to choose investment winners, contributing to his billions in personal wealth and the success of his company Berkshire Hathaway (NYSE:BRK.A,NYSE:BRK.B).
While Buffett and his company are often known for stock-buying activities, the past year has brought moves in the other direction, with Berkshire liquidating more than US$125 billion in 2024’s first three quarters.
Why is Berkshire moving to cash?
Although Buffett’s Berkshire has not publicly stated its reasons for selling, there is speculation that the company is taking a wait-and-see approach to the new Trump administration’s plans.
Forbes senior contributor Jack Kelly said in November 2024 that Berkshire had spent eight consecutive quarters increasing its cash holdings to a record US$352 billion. At that time, he likened the company’s positioning to its activity early in the COVID-19 pandemic, when uncertainty flooded global markets.
The economic situation is once again uncertain, and companies like Berkshire may be exposed.
Berkshire has recently reduced its positions in Citigroup (NYSE:C), Bank of America (NYSE:BAC) and digital banking company Nu Holdings (NYSE:NU) by 73.5 percent, 14.7 percent and 53.5 percent, respectively.
But it isn’t all just sales; the company also invested in Domino’s Pizza (NYSE:DPZ), increasing its stake by 86.4 percent and making a US$1.24 billion investment in beverage conglomerate Constellation Brands (NYSE:STZ).
And while Berkshire has amassed record cash holdings, it may not maintain them. In his letter to shareholders, included in the company’s February 22 annual report, Buffett noted that he prefers not to hold cash.
“Berkshire shareholders can rest assured that we will forever deploy a substantial majority of their money in equities — mostly American equities although many of these will have international operations of significance,’ he wrote.
‘Berkshire will never prefer ownership of cash-equivalent assets over the ownership of good businesses, whether controlled or only partially owned.’
What is the Buffett Indicator?
As market volatility begins to ease, Berkshire may begin to move some of its cash back into equities, and Buffett has always looked to stocks that have high growth potential.
This approach led him to astonishing gains from Apple (NASDAQ:AAPL) — Buffett’s US$25 billion investment turned into a US$125 billion investment in less than a decade. He also saw impressive gains through Coca-Cola (NYSE:KO), where a US$1.3 billion investment grew to US$24.5 billion over a 36 year period.
When it comes to assessing buys or sells, Buffett’s preferred measure is the market cap to GDP ratio. Since he first spoke about this measure in 2001, it has become known as the Buffett Indicator.
The Buffett Indicator is commonly assessed by comparing the Wilshire 5000 (INDEXNYSEGIS:FTW5000), a market cap-weighted index of the market value of all actively traded US stocks, to US GDP.
Currently, the Buffett Indicator is 194.1 percent, meaning the overall market is significantly overvalued. It’s been that way for some time, which could explain the significant sales at Berkshire over the past year.
Does that mean there aren’t opportunities?
No. There are always opportunities.
In his presentation at the Prospectors & Developers Association of Canada (PDAC) convention, Golden Portfolio founder Garrett Goggin discussed how gold equities may present significant opportunities.
Speaking about the Buffett Indicator, Goggin suggested that Buffett is staying away from the market.
“Buffett can’t find value anywhere because all the growth stocks are overpriced. He wants free cashflow at a discount. The last times it was this overvalued were in 1970, 2000 and briefly in 2020,” he said.
Goggin went on to discuss the price of gold during that time. As the Buffett Indicator retreated from its highs in the 1970s, gold went to US$800 per ounce. In 2000, the yellow metal went from US$250 to over US$2,000 over the next 10 years; now, in 2025, the gold price is trading at historic levels, around US$2,900.
While it would make sense for gold equities to be benefiting from the high gold price, Goggin suggested that’s not the case — instead, gold stocks are in a stealth crash and present extreme opportunity.
“This is a secular shift from growth to value, and the mining stocks represent value,” he said.
Because of this shift, Goggin said he wouldn’t be surprised if Buffett sees what’s going on in the sector and buys shares of a major gold miner like Newmont (TSX:NGT,NYSE:NEM). With Buffett’s reputation as a market mover, Berkshire investing in a gold company like Newmont could be the catalyst investors have been waiting for.
What should investors do?
The same as always — it’s important to carry out due diligence and weigh your risk.
While gold producers may present excellent opportunities, Goggin suggested a different route.
He explained that over the past 30 years, gold companies have underperformed compared to the gold price, but noted that royalty companies have tended to outperform.
“Stocks and companies have management expenses. Agnico Eagle Mines (TSX:AEM,NYSE:AEM) has 17,000 employees, but you can run a royalty company with four or five employees. Royalties are able to drive free cashflow per share higher, which is the only thing that pushes the share price higher,” Goggin said.
He went on to say that royalties are more stable and fit into a longer-term growth strategy, explaining that they are also more conservative and reduce investor risk.
Securities Disclosure: I, Dean Belder, hold no direct investment interest in any company mentioned in this article.