Page 2 - FWP Wealth Adviser Newsletter - February 2025

ISSUE 105
FEBRUARY 2025

During the 2008 financial crisis, Buffett famously advised investors to “be
fearful when others are greedy, and greedy when others are fearful”. While

markets were in turmoil, Buffett made strategic investments in companies
like Goldman Sachs and General Electric, providing them with much-
needed capital and securing favourable terms for Berkshire Hathaway.

Recent market conditions have prompted Buffett to take speculation, and being prepared to act decisively when
a cautious stance. Berkshire Hathaway’s record $325 billion opportunities arise.
cash pile signals a wariness towards current market valua-
tions and potential economic headwinds. This substantial Bear Market Preparations: Cash, Quality, and
cash reserve not only provides a buffer against market Patience
downturns but also positions Berkshire to capitalise on Buffett’s current strategy reflects his preparation for po-
opportunities that may arise during periods of market stress. tential market turbulence. His approach centres on three key
elements: maintaining substantial cash reserves, focusing
Understanding Volatility: Buffett’s Historical on quality investments, and exercising patience.
Playbook
To appreciate Buffett’s current strategy, it’s crucial to The Importance of Cash Reserves
examine how he has navigated past crises. Three significant Buffett has long emphasised the strategic value of cash,
periods stand out: 1969, 2008, and 2020. famously stating, “Cash is to a business as oxygen is to an
individual”. Berkshire’s massive cash pile serves multiple
The 1969 Market Peak purposes:
In 1969, amid a speculative frenzy, Buffett made the 1. It provides a buffer against market downturns.
unconventional decision to liquidate his investment part- 2. It allows for quick capitalisation on opportunities during
nership and return capital to investors. “In 1969, Buffett market dislocations.
liquidated his fund and returned capital to avoid speculative 3. It signals caution about current market valuations.
excesses,” a move that protected his investors from the For Australian investors, this underscores the importance
subsequent market downturn. This decision exemplifies of maintaining an appropriate cash allocation within their
Buffett’s willingness to step away from the market when portfolios. While the specific amount will vary based on
valuations become detached from fundamentals. individual circumstances, having cash on hand can provide
both protection and opportunity during volatile periods.
The 2008 Global Financial Crisis
During the 2008 financial crisis, Buffett famously ad- Focus on Quality Investments
vised investors to “be fearful when others are greedy, and Buffett’s recent portfolio adjustments reflect a focus
greedy when others are fearful”. While markets were in on quality and value. Notably, “Buffett trimmed Apple by
turmoil, Buffett made strategic investments in companies 13% in 2024, locking in gains amid stretched valuations”.
like Goldman Sachs and General Electric, providing them This move demonstrates his willingness to reduce exposure
with much-needed capital and securing favourable terms for to even favoured investments when valuations become
Berkshire Hathaway. excessive.
For Australian investors, this principle can be applied
The 2020 Pandemic Shock through a focus on companies with strong balance sheets,
The COVID-19 pandemic presented a unique challenge. consistent cash flows, and durable competitive advantages.
Initially, Buffett appeared hesitant, selling airline stocks Exchange-traded funds (ETFs) that emphasise quality factors,
at a loss. However, as the market rebounded, Berkshire offer a way to implement this strategy in a diversified manner.
increased its stakes in Japanese trading houses and made a
significant investment in Occidental Petroleum, demonstrat- The Virtue of Patience
ing Buffett’s ability to adapt to changing circumstances. Buffett’s approach to market volatility is characterised by
These historical examples highlight Buffett’s consistent patience and a long-term perspective. He avoids reacting to
approach: maintaining a long-term perspective, avoiding short-term market movements and instead focuses on the

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