Has Warren Buffett Nailed Another Market Top?

I know. I know. Warren Buffett is not a market-timer, has no idea what the market will be doing this year, or next, or at any specific time in the future. Or so he says, and the media seems to accept it as fact.

So we probably shouldn’t pay attention to what he is doing and saying now.

However, in spite of what he says, Buffett has a remarkable track record of accurately calling the serious market tops and bottoms.

That record began in 1956, when he launched Buffett Partnership Ltd., a limited partnership investment company, similar in make-up to the hedge-funds of today. He managed that fund with major success, with performance that would have turned an investor’s $10,000 in 1957 into $300,000 by 1969.

He then pulled off one of the most exquisite market-timing moves of all time.

After making those huge gains in the 1960’s bull market, and while investors were still piling into the stock market with excitement, Buffett liquidated his partnership fund and returned their significantly elevated assets to his investors, telling them they’d probably be better off in government bonds for the next several years.

And indeed, the horrible 1970’s decade began almost immediately, with the Dow losing 35% in the 1969-70 bear market.

Buffett stayed away from the stock market, in spite of the 1969-1973 bull market lifting the Dow back to its 1969 peak and somewhat higher. He settled for managing the businesses he had acquired control of, including textile mill Berkshire Hathaway (which he soon began expanding into the insurance industry).

And then, with another superb market-timing move, after the Dow had lost 45% of its value in the 1973-74 bear market, Buffett returned to the stock market.

In a famous 1974 interview in Forbe’s magazine, he said, “This is the time to start investing again.” And he did so big-time, using Berkshire Hathaway as the holding company for his investments.

Were those two market moves the end of his market-timing history? Not at all.

Thanks to the powerful 1990’s bull market, by 1999, Berkshire Hathaway had certainly become way too big to be able to liquidate if Buffett became bearish on the market.

But at what turned out to be the top of that spectacular 1990’s bull market, in 1999 Buffett raised Berkshire’s cash level to a huge $48 billion.

He didn’t describe it as market-timing of course, simply saying “I just can’t find anything I want to invest in right now.”

At the same time, in September, 1999, as reported in Fortune magazine, he said, “What I am about to say – assuming it’s correct – will have implications for the long-term results to be realized by American stock-holders. . . . . Over the next 17 years, equities will not perform anything like – anything like - they have performed over the past 17 years. . . If I had to pick a probable annual return it would be 4% after inflation, and if 4% is wrong, I believe the percentage is as likely to be less as more.”

Exquisite market timing?

The market almost immediately rolled over into the severe 2000-2002 bear market and the so-called “lost decade”.

So should we be concerned that, according to the latest SEC filings of Berkshire Hathaway, Buffett has again raised and is sitting on, $49 billion in cash? And in a recent interview said, “Stocks have moved a long way. They were very cheap five years ago. That’s been corrected. . . We’re having a hard time finding things to buy.”      

Of course, once again holding $49 billion in cash is not due to ‘market-timing’, but just because he’s not able to find any stocks cheap enough to buy.

And maybe he’s changed his mind from his 1999 prediction about market problems for 17 years. Besides as he says, he’s not a market-timer and never has any idea what the market will do. Yeah.

He has my attention.