Despite a promising start to the year, the stock market entered a correction in late February. The ongoing trade dispute has heightened concerns surrounding inflation and recession — causing a sharp decline in risk assets such as equities and cryptocurrencies.
President Trump’s decision to impose tariffs could lead to increased costs for businesses, or, as we’ve recently seen, retaliatory tariffs that threaten the profits of companies focused on exports. In tandem with this, the threat of resurgent inflation could lead to a high interest rate environment — which would, in turn, eat away at corporate profits and lead to a slowdown in the economy.
By press time, the benchmark S&P 500 index had receded to 5,599, a figure equating to a 4.8% loss since the start of the year.
Picks for you
Taking a page out of an expert’s book is a prudent choice — particularly in circumstances like the one we find ourselves in now. Warren Buffett, the Chief Executive Officer (CEO) of Berkshire Hathaway (NYSE: BRK.B), has managed to outperform the markets on a consistent basis over the course of his long and storied career. The ‘Oracle of Omaha’ has been ringing the alarm bells when it comes to equities for quite a while now — and his warnings seem to have been well founded.
Warren Buffett’s playbook — cash, T-bills, time
First things first — as the quintessential value investor, it comes as little surprise that Buffett has been cautious, if not outright bearish, for quite a while now. The stock market is at a record high valuation. Buffett and Berkshire have been net sellers of stock in both 2023 and 2024.
In fact, the gap is quite large — last year, Warren Buffett sold $134 billion worth of stocks, up from just $34 billion in the year prior to that. At present, the billionaire is sitting on a record-breaking $334 billion cash position. Moreover, he has roughly $286.5 billion in the form of treasury bills.
That’s not to say that Buffett is turning away from equities — as he recently restated his oft-repeated view that Berkshire will always prefer equities to paper money. Berkshire’s updated stock portfolio includes increased stakes in several companies, as well as one new holding — but on the whole, it’s pretty clear that he is expecting a rather major market-wide pullback, and wants to be well-positioned to take advantage of it.
So, what can the average retail investor do to mirror Warren Buffett’s moves? The ‘Oracle of Omaha’ has recently exited his exchange-traded fund (ETF) positions — and doubled down on defensive picks in the energy and consumer staples sector. While such a posture is unlikely to provide outsized returns, it will likely prevent significant losses — particularly in view of the fact that the odds of a recession occurring seem to be increasing.
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