Why is Warren Buffett's fund raising cash?
According to the analysis and translation group of the Stock Information and Education Company and quoted by MSN, the caution and action of "Warren Buffett", the investment legend, could be a warning signal for global markets. Berkshire Hathaway recently announced that its cash reserves have reached a historic record of $381 billion. This unprecedented amount of liquidity raises a fundamental question: why has one of the world's largest investors retreated at the peak of the markets?
The answer must be sought in a historical indicator; the price-to-earnings (P/E) ratio of the stock market. Buffett's action, which is always known as a symbol of "value investing", indicates taking a defensive stance against current market valuations. This report tries to reveal the logic behind this caution by examining the relationship between Buffett's new strategy and historical P/E ratios.
A review of the history of financial markets shows that taking refuge in cash when prices exceed intrinsic value is a proven strategy for preserving capital and generating future profits.
The price-to-earnings ratio (P/E) is a ratio that divides the current price of a stock or the overall market by its earnings per share (EPS), indicating how much investors are willing to pay for each unit of profit. Currently, this number is around 32, meaning investors are paying almost twice the historical average for each unit of profit.
Examining the periods when the P/E ratio has reached this level provides a clear picture of the likely future behavior of the market. In recent history, the ratio has crossed the 30 level only a few times, and each time it has been accompanied by major changes. For example:
The dot-com bubble of 2000: The P/E ratio reached around 40 to 50, followed by a severe crash in the technology market that lasted more than a decade.
Financial crisis of 2008: Although the P/E ratio did not reach the peak of the dot-com boom, its high level was a sign of excessive optimism and disregard for structural weaknesses.
Covid-19 crash of 2020: The temporary P/E jump to near 30 was the result of a massive injection of liquidity by the Federal Reserve.
Summer 2025: Reports suggest that the threshold has been breached again, reaching around 32.
Berkshire Hathaway has prepared itself for a possible market correction scenario by holding $381 billion in cash. If prices fall, this liquidity will act as “firepower” to buy quality assets at lower prices.
The hot debate among economists is now whether the historical average P/E ratio of 16 is still valid, or whether the market structure has changed in such a way that higher valuations make more sense.
The market may be drifting away from traditional logic for a long time. Buffett has held high liquidity in the past, but the current figure is a sign of unprecedented skepticism and caution. This is not to predict an immediate market crash; rather, it suggests that Buffett is waiting for opportunities that only appear in times of stress and market correction. While new technologies and productivity gains may have boosted average valuations, the risk remains.
Warren Buffett’s caution, with $381 billion in cash, is reminiscent of the old investment maxim: “In times of uncertainty, cash is king.”