Warren Buffett’s Cash Pile: What It Means for Investors

Well, Warren Buffett of Berkshire Hathaway has been selling stocks while building a cash reserve that now stands at a little over $381 billion.

Now leverage ETSs do aim to multiply daily returns, often 2 or 3 times the movement of an index or asset, and they don't hold assets directly, which can amplify both gains as well as losses.

Now even small market moves can create big losses, making these.

Well joining me to break all of this down is Rob Haugen, CIO of River One Asset Management.

Rob, great to have you here.

Welcome.

Good to be here.

Thank you.

Well, here we are ahead of the opening bell, and when it comes to Warren Buffett, many of us pay attention to what the Oracle of Omaha does.

So how are you interpreting his moves?

It will be interesting to see if Warren Buffett later in his career here is going to have one big win.

The end here, right, he has a massive cash pile, 380 billion, I think, which would be 400 S&P stocks essentially on the bottom four he could buy any one of those companies.

Will he be able to time using that cash pile?

Fantastic, fantastic question.

I think he's probably going to get one more here if we get a good market sell off.

And when it comes to ETFs, we know that sometimes they can create valuation disconnects.

So what lessons can Investors actually learn from Buffett's cautious approach.

Well, I think everybody needs to understand valuation in their portfolio, right?

So if you look at stocks in the AI world, which are trading largely on story right now, they're trading largely on leverage in some cases.

I think you need to be worried about what's in your portfolio, how much money they make or are going to make, and what the valuation of that company is.

There are stocks in the AI world that are trading.

100 times earnings, 100 times revenues in certain cases.

If you don't know that, if you're not willing to bet that the revenue is about to explode or the earnings are about to explode, if you're just buying it because the stock is going up and you like that it's winning, you are not doing your Warren Buffett type research.

You are probably going to get burned.

Eventually when the stock market sells off and everything revalues based on profitability, which eventually it always does, yeah, when we take a look at the mega cap tech companies, especially the mag 7 names, and we look at their caps and their spending, whenever there are massive market moves in the broader equity averages, we tend to see a correlation there when it comes to those tech names.

So tell us why investment.

Junk food, a term that you have used, is important.

I think when we think about junk food, we might be thinking about snacks, popcorn cookies, things that we don't need.

So explain this to us specifically what we call leveraged ETFs, which have become very, very popular in the market right now.

There are 700 leveraged ETFs that have been put out there.

There's over $160 billion in these leveraged ETFs.

And some of them carry huge numbers, right?

So Nvidia's long, one of the, one of the, and there are multiple Nvidia doubles.

One of them has $5 billion in it, right?

That kind of leverage within Nvidia is going to causes outside move both upside and downside and potentially move it past where it's real valuation should be based on based on the leverage that's going into the system.

Now Nvidia itself and the mega caps themselves. they're making a lot of money.

They're spending a lot of cap backs.

They are doing a lot of things to generate new, new, new revenue in the future.

That's not necessarily the problem in our in our opinion.

It's more the down chain stuff.

It's the double long stocks that don't have revenue yet, certainly don't have profits yet.

They really haven't proven their business models out.

So we're talking about quantum computing.

We're talking about some of the expensive.

Uh, stocks and AI, all of these things, the down chain names have not proven their business models out per se, and probably the leverage is what's causing problems in those stocks in valuation.

Yeah, and I do want to zoom in on another factor here and that is IPOs.

So as we head into your end, the US government does continue to shut down and It is stretching into day 37.

So how is this affecting the IPO market and what are the implications for funds as well as family offices?

Well, I mean, the IPO market has been slow to medium for really for years now since COVID.

Supply is a huge piece of the stock market, and when supply gets really heavy, our current stock market typically sells off.

And that is because you have to sell a stock to buy this new IPO, right?

Supply and demand has been roughly equal so far, but if the, if the government opens back up and a deluge of IPOs come, it's probably going to be negative for the equity markets because if you want to buy that new IPO, you have to sell something, some asset to make unless you had cash on your balance sheet waiting for it.

Yeah, and Rob, finally, before I let you go, it may be a little too early to be thinking about New Year's resolutions, so I do want to get your take on lessons that you have learned from the family office experience and what you're doing with this.

Yeah, well I just think being very careful about what you invest in, whether they're going to make money or not.

Liquidity is very important, especially when it comes to family offices, knowing what you own and how long you're going to have to own it for, especially if you're trying to play sort of late stage tax, something that might IPO.

You need to understand that stock may IPO 6 months from now or 6 years from now.

You have to be in a position so that you can handle a much longer timeline because typically that does.

And your current work at River One Asset Management.

Tell us what's going on there and how you're taking the lessons that you learned from your family office experience when it comes to the market.

Yes, so what we did in our family office and what a lot of family offices are doing right now is we created our own ETF.

We're here on the, it's RVER is the ticker and the We did this because obviously it's easier for the family to use one equity when it's looking at its portfolios or multiple ETSs when it's looking at building out its portfolios.

However, if we're doing financial services work.

And it's going well.

There's no reason that all our friends, families, other family offices can't join along with us.

Also, what we built for family offices, a lot of other family offices wanted the exact same product and just can't build it, so we built it for them.

So we were able to list here on the New York Stock Exchange, have liquidity. within our own equity portfolio and do something for other family offices, other RIAs that may fit their portfolio as well.

Well, Rob, it was a pleasure having you here on the show this morning at the New York Stock Exchange.

We are fast approaching the market open, so I will have to let you go, but thank you so much for your insight and your perspective.

Thanks for having me.

Thank you.