At 92 years of age, Berkshire Hathaway CEO Warren Buffett has as much clout as he’s ever had. Unsurprisingly, tens of thousands of shareholder waited on every word that came forth from the Oracle of Omaha at Berkshire’s 2023 annual meeting. What was surprising, however, was Buffett’s advice for investors in today’s volatile, confusing market.

I call the market of 2023 confusing because everybody and his uncle expects a recession this year or next year, yet the stock market refuses to go down in any meaningful way. Perhaps this might be acceptable to short-term traders who have been conditioned to buy every dip, but value investors who look up to Buffett are surely wondering how to navigate this frustrating market landscape.

One clue, which didn’t come from Buffett’s words but rather from his company’s actions, can be found in Berkshire Hathaway’s cash hoard. Notably, Berkshire cash position increased from $128 billion in the fourth quarter of 2022 to $130.616 billion in 2023’s first quarter.

This says more than any words could express. If Buffett had been super-optimistic about the near-term future of equities, surely he would have allocated more capital toward them. Instead, he chose to sit on a sizable cash position, which seems to suggest that he’s anticipating lower share prices in his favorite publicly listed companies.

Again, I’m reading into Buffett’s action, not anything he actually said at the Berkshire annual meeting. But then, you’re not likely to ever hear Buffett state outright that large-cap stocks are overvalued and due for a correction. He’s forthright, but not that forthright.

So, you and I will have to read between the lines. Buffett sees what everyone else does: a crowd of retail traders who have already priced in a Federal Reserve pivot to interest rate cuts even though the Fed hasn’t indicated that it will actually cut rates.

Courtesy: Yahoo Finance

He surely also sees stock prices that are getting harder to justify with each passing day. Even Berkshire Hathaway stock, which is based on a basket of value-priced businesses, is sitting uncomfortably close to its 52-week high and all-time high.

Buffett also sees the current state of the U.S. banking system, which has been in turmoil since March (though the problems certainly have been forming underneath the surface for much longer than that). Regarding this, Buffett anticipates that American banks could face more turbulence, and he’s ready to pounce: “We want to be there if the banking system temporarily gets stalled in some way,” Buffett declared.

Of course, it’s easy for a multibillionaire to “be there” to support banking giants when the going gets tough. This doesn’t necessarily mean that you and I have to trust the banking system in 2023. Besides, Buffett isn’t entirely optimistic about the near-term health of America’s large corporations.

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    “In the general economy, the feedback we get is that, I would say, perhaps the majority of our businesses will actually report lower earnings this year than last year,” Buffett warned during the annual shareholder meeting. This isn’t exactly a call to stay out of large-cap stocks, but it might be a suggestion that investors should choose their bets carefully.

    In addition, Buffett couldn’t deny that the pace of the Fed’s interest rate hikes has been extraordinary aggressive. This, without a doubt, was among Buffett’s considerations when he cautioned investors about a likely fall-off in corporate earnings.

    Courtesy: Yahoo Finance

    “It was more extreme in World War II, but this was extreme this time,” Buffett commented in regard to the central bank’s recent response to economic turmoil. Needless to say, Buffett has seen and done more than most of us have, and it’s not every day that he calls a phenomenon “extreme.”

    Most shockingly of all, Buffett advised to all aspiring value investors that “What gives you opportunities is other people doing dumb things.” Furthermore, Buffett suggested that value investing opportunities are plentiful in 2023: “In the 58 years we’ve been running Berkshire, I would say there’s been a great increase in the number people doing dumb things, and they do big dumb things.”

    We can probably assume that Buffett is referring to retail traders selling high-quality stocks based on irrational fear and/or insufficient evidence. I must admit, I also like to capitalize on this type of opportunity. Hopefully, you and I will be like Buffett in the coming months: willing and able to make the most of the crowd’s mistakes in the markets.

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