Buffett’s $100 Billion Bet

Billionaire Warren Buffett (net worth $117.7 billion) is widely considered one of the best investors of all time. He started trading stocks more than 80 years ago, and he has persevered – and profited – through all sorts of market conditions. As Buffett approaches his 93rd birthday, he continues to take an active role in managing his holding company, Berkshire Hathaway. 

In his position as Berkshire Hathaway’s Chairman and CEO, Buffett has the final say on where and how to invest Berkshire Hathaway’s $350+ billion stock portfolio. He is also responsible for the management of his company’s subsidiaries and other assets.

That’s a tall order, considering Berkshire Hathaway’s market cap is nearly $780 billion. Berkshire Hathaway Class A stock is the most expensive in the world. It currently trades at more than $500,000 per share. 

Every transaction Warren Buffett and his management team make is carefully scrutinized by Berkshire Hathaway shareholders, financial news media, analysts, and other investors. The entire industry takes note of how the company’s assets are allocated.

At the moment, Warren Buffett watchers are particularly interested in the amount of T-Bills Berkshire Hathaway is buying. Though Berkshire Hathaway has always invested in Treasury Bills, the level is much higher than usual. This has prompted a debate in the world of finance over how to interpret the meaning of Warren Buffett’s T-Bill strategy. 

Is Warren Buffett investing in Treasury Bills because he expects the market to go down? Is Berkshire Hathaway staying away from stocks because they are overvalued?

Buffett’s $100 billion bet on T-Bills might be driven by any number of factors, but the bottom line is that his followers have started buying Treasury Bills of their own. After all, given his experience and expertise, Warren Buffett’s investment strategy is rarely wrong. 

What Are The Benefits Of Treasury Bills? 

Berkshire Hathaway has always had Treasury Bills in its asset mix. In fact, Warren Buffett has been open about the fact that his firm buys T-Bills every Monday.

T-Bills are similar to US Treasury Bonds, but they are always short-term. They mature in 12 months or less, and Berkshire Hathaway typically buys T-Bills with maturity dates between three and six months. 

Treasury Bills are a good place to park cash because they are backed by the US government. That means they are as close to risk-free as any investment gets. Better still, there are tax advantages to T-Bills. The interest earned is only taxed at the federal level. It is exempt from state and local taxes. 

The most common reason investors buy T-Bills is to provide balance for higher-risk investments. The short-term maturity dates offer the additional benefits of flexibility and liquidity, which are critical for Berkshire Hathaway. Treasury Bills are easy to sell, so the company can act on other opportunities as they come up. 

The fact that Berkshire Hathaway is investing in Treasury Bills isn’t particularly unusual, but there is something different about how Berkshire Hathaway is investing in T-Bills for 2023. T-Bills make up a much larger percentage of the company’s total portfolio than usual, according to financial reports as of March 31, 2023. 

On top of the $100+ billion in T-Bills, Berkshire Hathaway has an additional $23.8 billion in cash and cash equivalents. The combination of these instruments doesn’t make short-term bonds, cash, and cash equivalents the biggest portion of Berkshire Hathaway’s portfolio, but they are collectively the company’s second-largest asset category.

Only the firm’s Apple position is bigger – Berkshire Hathaway has more than $179 billion invested in Apple stock. 

What Are The Disadvantages Of Investing In Treasury Bills? 

There is only one real disadvantage to buying Treasury Bills. As with any investment, higher risk means higher potential reward – and, of course, lower risk means lower reward.

T-Bills carry virtually no risk, and the interest they pay reflects that fact. Returns tend to be lower than most other options, including stocks, commercial bonds, and certificates of deposit (CDs). 

This can be especially problematic in an environment where interest rates are going up – new T-Bills might pay more than the ones in hand. It’s likely that Warren Buffett’s strategy takes this into consideration when it limits T-Bill purchases to maturities of six months or less. As interest rates rise, new T-Bill purchases pay more than those which have recently matured.

It’s worth noting that today’s T-Bill rates have more than doubled when compared year-over-year. As of early August, the average discount rate/yield for a 91-day T-Bill is 5.28 percent. Last year, it was just 2.52 percent. 

Are Treasury Bills A Good Investment In 2023? 

There are multiple theories on the whys behind Warren Buffett’s current enthusiasm for Treasury Bills, but one stands out as the most likely cause of his chosen course of action.

Warren Buffett has said on many occasions that he believes there is a simple, accurate way to tell where valuations are at a given point in time: divide the stock market’s total market cap by the gross domestic product (GDP) for the country in question. 

In the financial world, this calculation is called the “Buffett Indicator,” and right now, the Buffett Indicator for the United States is quite high. It has exceeded the peak that occurred just before the market fell apart in the early 2000s, which suggests the market is overvalued.

If so, a correction – perhaps a large one – could be coming. When this is considered alongside the ongoing interest rate increases and the continued fears of an impending recession, Treasury Bills appear to be a good investment in 2023.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.