A lot of people follow Warren Buffett\u2019s investing moves. Why not? He\u2019s the best investor in history. If you disagree, come at me in the comments.<\/p>\n
I don\u2019t follow Buffett\u2019s moves too much for a few reasons:<\/p>\n
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- He has research on companies he invests in that you and I don\u2019t. I\u2019ll admit that I don\u2019t know insider trading laws, but I guarantee he has people on his team talking to Apple\u2019s management before he buys 100 million shares.<\/li>\n
- By the time we learn what he invested in, the stock price has already gone up. He buys at tremendous volume, and that demand can move the price on its own.<\/li>\n
- Don\u2019t try to beat him; just join him. You can buy Berkshire Hathaway stock and copy his trades for yourself. Let your money piggyback with the best investor of all time and focus on your unique skills to make more money.<\/li>\n<\/ul>\n
Over the weekend, Berkshire Hathaway revealed that it had $325 billion in cash and equivalents (US treasury bills). That\u2019s enough money to buy half of Walmart or all of AT&T and have more than $100 billion left over.<\/p>\n
This isn\u2019t the normal amount of cash he has on hand. When smart investors have this much cash on hand, it means that they don\u2019t see a better investment. They see the markets as \u201cexpensive.\u201d Buffett can buy stocks all over the world. In recent years, he\u2019s been buying a lot of Japanese stocks. He has invested in the Chinese electric vehicle company BYD. So, with extreme access to every investing market, he\u2019s still choosing to hoard cash.<\/p>\n
I think I know why. I don\u2019t think it\u2019s complicated.<\/p>\n
For a decade and a half, I\u2019ve been saying that you can know how the stock markets are going to go<\/a>, by looking at the Shiller PE (or CAPE). It\u2019s not a perfect indicator in the short term, but it can predict when the big crashes are coming (eventually) and when you can buy at a discount.<\/p>\n
Here\u2019s the historical, Shiller PE chart<\/a>:
![\"\"](\"https:\/\/www.lazymanandmoney.com\/images\/posts\/2025\/02\/Screenshot-2025-02-24-at-09-28-03-Shiller-PE-Ratio-Multpl-1024x566.png\")
<\/p>\nYou can see the stock market bubbles of 1929 and the dot com bust of 2000. You can see the drop in 2008. However, in this case, there wasn\u2019t a big spike ahead of time. It\u2019s easy to say in hindsight, but it was the best buying opportunity of the last 25 years. Finally, you can see the drop in the market after October 2021, after the euphoria of surviving the pandemic drove up the markets.<\/p>\n
Stocks have only been this expensive twice before \u2013 the dot com bust and that October 2021 peak. It\u2019s being driven by the investment in AI. I feel it\u2019s a generational game changer, so maybe the high price is justified. However, I feel that, like the dot com bust, two things can be true. New technology (internet or AI) can change everything, and the markets can crash while companies figure out how to leverage it into increased profits and productivity.<\/p>\n
The markets may also be high because the new administration is seen as creating a better business environment. Less regulation can translate directly into more profits. The Consumer Financial Protection Bureau\u2019s (CFPB) mission is to protect consumers from unfair financial practices. The new administration is trying to close that agency, which will allow banks to push the limits without fear of repercussions. It should be good for their profits \u2013 not good for consumers who get taken advantage of.<\/p>\n
However, there are a lot of potential negative financial signs:<\/p>\n
Inflation is high again.<\/b><\/p>\n
The core inflation rate was 3.3%. The Federal Reserve wants to get that down to around 2%. The core inflation rate doesn\u2019t count the price of food or energy. Have you seen the price of eggs lately?<\/p>\n
Tariffs are an uncertainty.<\/b><\/p>\n
It\u2019s almost universally agreed that tariffs hurt the economy and raise inflation. Tariffs have been threatened and rescinded several times in the last month. Some have been enacted and remain. Who knows what\u2019s coming tomorrow?<\/p>\n
The Federal Reserve probably won\u2019t lower the interest rate as expected.<\/b><\/p>\n
As CNBC explains the Federal Reserve \u201cis stuck in neutral\u201d<\/a> while waiting on Trump\u2019s policies. With inflation being high again, there\u2019s no reason for them to lower rates. With the uncertainty around tariffs, it\u2019s impossible for them to project a long-term outlook.<\/p>\n
The Potential for Disaster<\/b><\/p>\n
Remember the CFPB that I mentioned above? It was created as a direct response to the subprime banking collapse in 2009 that sent markets down 50%. Without that guardrail (and others in the government), will history repeat itself?<\/p>\n
The Musk\/DOGE factor<\/b><\/p>\n
Back in November, Elon Musk said<\/a> that Americans would experience \u201ctemporary hardship\u201d and agreed that the markets would \u201ctumble\u201d as he tried to eliminate $2 trillion in expenses from the US budget. By many estimates, he has barely gotten started. While the DOGE website has claimed $55 billion in cuts, many independent news sources have explained that the real number is likely less than $10 billion.<\/p>\n
The idea is that a smaller government will be more nimble and efficient in the long run. That very well could be true. There\u2019s been a lot of talk of reducing \u201cwaste\u201d in the government, but that shouldn\u2019t cause hardship. If you eliminate waste in your budget, you cancel the streaming channel that you never watch. It\u2019s literally wasted money, and you experience no hardship from something that you didn\u2019t use.<\/p>\n
So far, it seems like DOGE is cutting indiscriminately. Musk has literally shown up with a chainsaw to illustrate that he\u2019s lopping off parts of the government.<\/p>\n
In my last article, a commenter said that I should be careful about getting political. I don\u2019t see this as political since it is a big deal economically. Going back to the CFPB example above, it shouldn\u2019t be political to say that eliminating Big Bank\u2019s watchdog is very likely to hurt consumers. It\u2019s not political to say that removing the police station in your town is probably going to increase crime. In either case, eliminating them doesn\u2019t reduce \u201cwaste.\u201d The impact is real, not like canceling the streaming service you weren\u2019t using.<\/p>\n
In any case, we don\u2019t even have to dig into the waste. We\u2019re simply assessing the investing environment now, during the time that Elon Musk admitted that there would be a market \u201ctumble.\u201d<\/p>\n
So What Do You Do?<\/h2>\n
That\u2019s up to you. There\u2019s a philosophy that you should never time the market. I don\u2019t even know what that means anymore. It feels that whenever it is mentioned, it\u2019s assumed that there are people who sell off all their stocks and put them in cash to invest after an upcoming crash. I don\u2019t know anyone who actually does that, but I guess it happens?<\/p>\n
I DO<\/b> look to time the market through tactical asset allocation. I have a Rule of 20<\/a>, where my bond allocation should be the Shiller PE minus 20. So today, that would be 17.9% of my money in bonds. I\u2019m an aggressive investor, so this is really a lot for me. As I get older, I may change it to a Rule of 10 or even a Rule of Zero, which matches the Shiller PE. This is what feels right for my risk tolerance.<\/p>\n