I've seen a lot written lately about the likelihood that a new bull market is coming. Some investors appear to be confident that a big stock market rebound is right around the corner. I hope they're right.
But is a new bull market really imminent? Warren Buffett doesn't seem to think so.
Image source: The Motley Fool.
Money talks
As far as I know, Buffett hasn't made any public statements about whether or not he believes that a bull market is ready to roar. However, he really doesn't have to say anything. Why? Money talks.
What I mean by that is that Buffett would almost certainly be putting a lot more money to work right now if he truly felt that the stock market was about to rebound. But he isn't.
Sure, Buffett has bought quite a few stocks this year for Berkshire Hathaway's (BRK.A -0.30%) (BRK.B -0.26%) portfolio. He's made especially big bets on Occidental Petroleum and Taiwan Semiconductor Manufacturing.
However, Berkshire still had more than $105 billion in cash, cash equivalents, and short-term investments as of Sept. 30, 2022. That seems like an awfully big cash stockpile to have if Buffett really thought a bull market was coming soon. After all, we're talking about the man who once wrote, "When it's raining gold, reach for a bucket, not a thimble."
Looking back
Want to get a sense of how Buffett would act if he believed that better days were on the horizon? Just look back at what he did in the last sustained bear market.
The quick bear market of 2020 caused by the COVID-19 pandemic was an anomaly. However, the bear market during the Great Recession provides a pretty good picture of how the legendary investor thinks.
Berkshire Hathaway began 2008 with a cash position of $44.3 billion. Over the course of the next two years, it retained operating earnings of $17 billion. In total, the company had $61.3 billion socked away during the period.
By the end of 2009, this amount had been reduced by nearly 50% to $30.6 billion. And roughly $8 billion of that cash was designated for Berkshire's pending acquisition of BNSF Railway.
As Buffett later wrote to Berkshire shareholders, he and his team "put a lot of money to work during the chaos of the last two years." He added, "It's been an ideal period for investors: A climate of fear is their best friend."
Playing devil's advocate
Could I be wrong about Buffett's thinking? Yes. To play devil's advocate for a minute, there are two objections to my premise that especially stand out.
First, it's possible that Buffett is buying stocks like crazy right now but we just don't know it yet. Berkshire probably won't reveal its new positions taken in the fourth quarter of 2022 until February 2023.
Second, Berkshire's large cash position doesn't necessarily mean that Buffett isn't expecting a bull market in the near future. He could simply be concerned that stock valuations haven't come down enough in the market downturn.
Still, I don't see a compelling reason at this point to believe that Buffett is looking for an imminent bull market. But don't get me wrong: I have no doubt whatsoever that Buffett thinks the stock market will rebound strongly at some point. If there's one thing we know for sure about Buffett's mindset, it's that he's optimistic about the future over the long term.
