In today’s climate of proliferating tariffs, risky politics, and high market valuations, it’s natural for investors to feel anxious. This anxiety often arises from perceived threats. Moreover, recent stock sales by notable investors like Warren Buffett act to simply confirm investors’ loss-aversion bias (extreme fear of losing). However, it’s crucial to avoid letting fear dictate our portfolio strategies. Engaging in market timing or altering long-term investment compositions based on short-term events often leads to detrimental outcomes.
DEBUNKING THE MYTH OF MARKET TIMING
Many are quick to interpret Buffett’s recent stock sales as a shift towards market timing. However, this perception is misguided. Berkshire Hathaway’s cash and T-Bill holdings have indeed reached a record $321.4 billion following trims in positions like Apple and Bank of America. Yet, as Buffett emphasized in his year-end shareholder letter on February 22, 2025:
“Despite what some commentators currently view as an extraordinary cash position at Berkshire, the great majority of your money remains in equities. That preference won’t change.”
“Berkshire shareholders can rest assured that we will FOREVER deploy a substantial majority of their money in equities.”
“Berkshire will NEVER prefer ownership of cash-equivalent assets over the ownership of good businesses.”
Even after these share liquidations, Berkshire remains approximately 70% invested in stocks—far greater stock exposure than many investors maintain.
So why the sales? Primarily, it’s prudent to rebalance a portfolio when certain positions grow disproportionately. Additionally, at 94 years old, Buffett is likely considering his legacy. A cash position ensures that when he passes – and Berkshire stock potentially declines -- his successor, Greg Abel, will have the flexibility to deploy capital without the need to sell at a loss.
UNDERSTANDING THE REAL RISKS
The market is inherently aware of known risks—such as political leadership and tariffs. It’s the “unknown unknowns,” like the COVID-19 pandemic or the 2008 financial crisis, that pose true portfolio threats. Therefore, when assessing risks to your portfolio, consider:
Inflation: This is the dominant external risk to our money. It is the permanent loss of the value of each dollar that destroys wealth, NOT the temporary fluctuations in the number of dollars in our portfolio. Irrational investor behavior is the dominant internal risk.
Market Volatility (NOT A REAL RISK): While recessions, bear markets, and political changes come and go, the value of well-managed companies tends to endure over the long term. Since 1980, the S&P 500 has experienced average annual declines of 15% and an average decline of 33% once every five or six years – simultaneously, the value of stocks has increased about 60-fold! The declines are temporary, the premium returns are permanent!
MY INVESTMENT PHILOSOPHY
When I am asked what decisions I recommend my clients make in the face of perceived heightened uncertainty, I respond: “my clients have no decisions to make. They made them already when we devised a plan primarily focused on investing in real assets rather than paper assets, understanding the need for greater exposure to investments that combat inflation rather than those that succumb to it.”
The only time new decisions should be made is in response to life events or changing goals—never in reaction to current events or market fluctuations.
STRATEGIES FOR PROTECTING YOUR PORTFOLIO
Considering these insights, here are two key strategies to safeguard your investments:
- Stay Invested in Real Assets:Among the most reliable long-term investment that consistently outpaces inflation is equities. Real assets, like stocks, have historically proven to dramatically outpace inflation over time.
- Act Rationally Under Uncertainty: It’s vital to maintain rational investor behavior during turbulent times. Investors only succeed when they continuously act on their plan. In my experience, they irreparably harm their wealth when they react to current events, geopolitics, and volatility—hard stop.
CONCLUSION
While market conditions may evoke feelings of uncertainty, remember that the value of great companies tends to endure. Ambiguity is always present in the market. Hindsight bias can create the illusion that the world is understandable, leading us to believe we can successfully forecast the future—something we cannot do. Success depends on preparedness, not predictions. PLEASE STOP WATCHING CNBC!
Valuation—or anything else—can never be used as a market timing tool. By properly defining the real risks and continuously adhering to a long-term investment strategy, you can protect your portfolio and navigate through the noise of today’s financial landscape.
Until next time, please stay calm and practice rationality under uncertainty. You and your family’s financial future depend on it!