Berkshire Hathaway's cash reserves have reached a record high of over $334 billion, surpassing the market value of 93% of S&P 500 companies. This substantial cash pile highlights the high overall market valuation, especially since Berkshire seems unable to find a suitable major acquisition target. The cash reserves are even enough to purchase Coca-Cola, which has a market value of approximately $307 billion and is one of Berkshire's largest holdings.
Last year, as the S&P 500 index surged by 23%, Berkshire's cash reserves doubled. This aligns with their strategy of maintaining distance from the market when others are overly optimistic. The S&P 500's earnings yield is currently only 3.8%, indicating the lowest stock risk premium since the dot-com bubble.
An analysis of long-term bonds suggests the S&P 500's fair value is 5,120 points, implying the market is overvalued by more than 17%, even after recent corrections. Additionally, the Nasdaq 100 index is trading at a 22% premium compared to its implied value. Interestingly, Warren Buffett (Trades, Portfolio)'s annual letter to shareholders did not mention the bubble or overvaluation, but Berkshire's actions speak volumes about their cautious approach.
