Warren Buffett has been gradually increasing Berkshire Hathaway’s cash position to a record level.
The move suggests he is concerned about market valuation and a possible decline in 2026.
Investors can heed Buffett’s warning by staying invested and having cash on hand.
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Legendary investor Warren Buffett knows a thing or two about the stock market. Over the years, he has become a master at adjusting the Berkshire Hathaway (NYSE: BRK.B)(NYSE: BRK.A) stock portfolio based on where you think the economy is headed.
Its recent portfolio adjustments should be a big red flag for investors. In fact, Buffett is doing something he’s never done beforeAnd if you hope to maximize your portfolio returns in 2026, you’ll need to pay attention.
Here’s the unprecedented warning Buffett has offered and three things you can do to protect yourself and your portfolio.
Image source: The Motley Fool.
Berkshire Hathaway’s investment portfolio is famous for its stock holdings, but Buffett has always kept part of his portfolio in cash.
The amount of cash Buffett keeps on hand generally rises and falls with the valuation of the broader market, as measured by the S&P 500 Shiller CAPE ratio. For example, during the COVID-19 pandemic lockdowns, Shiller’s CAPE ratio exceeded 35 for the first time since 2001. Buffett reacted by keeping Berkshire’s cash position fairly stable at an all-time high of nearly $150 billion. In 2022, when the Shiller CAPE ratio fell below 30 again, Buffett quickly burned down Berkshire’s cash position to just $105.4 billion.
Today, Berkshire’s cash position is much, much larger than even $150 billion. In fact, Berkshire currently has $381.7 billion in cash and equivalents on margin, more than double the previous peak. Meanwhile, the Shiller CAPE ratio now stands at 39.42. The only time it has been higher was during the dotcom bubble of 1999-2000.
For Buffett, hoarding cash is a sign that he believes the market is overvalued. You could even be anticipating a major stock market crash in 2026.
The good news is that Buffett’s actions can serve not only as a warning but also as a guide for less experienced investors in three key ways.
Even if you’re convinced the market is about to crash, panic selling your entire stock portfolio is probably a bad idea. For one thing, timing the market is extremely complicated. If you sell today, you may miss out on tomorrow’s profits. And even if you sell at the right time, you risk waiting too long to buy again and missing out on the early stages of a market rally.
Buffett has been a net seller of stocks (that is, he has sold more shares than he buys in terms of dollar amount) for the last 12 consecutive quarters. But he hasn’t sold almost all of it: Berkshire still has $267.2 billion in shares!
Meanwhile, many of the shares Berkshire has sold have been partial positions. For example, although Buffett reduced Berkshire’s position in Apple for 41.8 million shares last quarter, he still holds Apple shares worth $60.7 billion. Buffett’s measured buying and selling is both a representation of his long-held faith in the power of the American stock market and an example to investors of how not to overreact to worrying economic indicators.
One of Buffett’s famous quotes is that “It is much better to buy a wonderful company at a fair price than a fair company at a wonderful price.” Although he wrote those words in 1989, they still resonate today.
But it’s especially telling that Buffett didn’t say “a wonderful stock” or “a wonderful investment,” but rather “a wonderful company.” Just because the overall market seems overvalued right now doesn’t mean there aren’t still great companies with fair prices. You may have to look for them a little more.
Even Buffett continues to buy shares of quality companies. In fact, in the most recent quarter, Berkshire bought more than $5 billion in various stocks, including shares of Google’s parent company. Alphabetinsurer Chubband Domino’s Pizza.
It’s always a good idea to have some cash on hand. And when you think the market is overvalued, it’s a good idea to have even more available. It’s wise to have a cash position readily available in case of an emergency, and useful to have if an opportunity arises in the market and you want to act quickly.
Buffett currently has a record amount of cash on hand, which may not be right for everyone. However, if there’s a big market correction in 2026 and the stocks on your watch list suddenly get a lot cheaper, you (and Buffett’s Berkshire Hathaway) will probably find plenty of ways to use that cash.
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John Bromels has positions in Alphabet, Apple and Berkshire Hathaway. The Motley Fool ranks and recommends Alphabet, Apple, Berkshire Hathaway and Domino’s Pizza. The Motley Fool has a disclosure policy.
Warren Buffett Sends Clear Warning As 2026 Approaches: Three Things Investors Should Do was originally published by The Motley Fool
