Latest / Stock Picking with Fexingo: Individual Equities, Research, and Building a Concentrated Portfolio / How Buffett's Cash Pile Signals a Shift in Stock Picking
Transcript
- Lucas: Berkshire Hathaway filed its quarterly portfolio update on Friday, and the headline number is hard to ignore: $325 billion in cash and short-term Treasuries. Luna: That's a record, right? Even more than the $320 billion they had at the end of last quarter. Lucas: It is. And it's been growing steadily for about eighteen months now. Buffett is effectively sitting on the sidelines while the S&P 500 sits at 7,537—up 1.3 percent just this week. The Dow is above 53,000. The Nasdaq is at 26,121. Everything looks expensive by historic measures. Luna: So is he signalling a crash? Or is he just not finding anything he likes? Lucas: That's the key question. If today's conversation helps you think about your own portfolio decisions differently—whether it's about holding cash or knowing when to sell—the way this show stays ad-free is listener support. You can find us at buy me a coffee dot com slash fexingo. Low-key, no pressure, but it keeps the lights on. Luna: And it lets us keep doing deep dives like this without sponsored segments. So back to Buffett—I think a lot of people assume he's predicting a crash. But that's not really his style, is it? Lucas: Not at all. Buffett has never been a macro market-timer. He's said repeatedly that he doesn't know where the market will be next year or even five years from now. What he does know is price versus value. And right now, he's not seeing many opportunities that meet his threshold. Luna: So it's about discipline. You have a price in mind, and if the market doesn't offer it, you wait. Lucas: Exactly. And for stock pickers building a concentrated portfolio, that's the single hardest skill to develop. Because the pressure is always to be fully invested. If you're running a ten-stock portfolio, holding 20 percent in cash feels like you're not trying hard enough. But Buffett runs a $900 billion company and is holding roughly a third of it in cash. Luna: That's a good perspective. Let's tie this to what's actually happening in the market right now. Apple had an incredible week—up 11 percent. Is that the kind of stock Buffett would buy today? Lucas: He already owns it, of course. Berkshire's biggest holding is Apple, about 40 percent of their equity portfolio. But at $312.66, Apple is trading at roughly 33 times trailing earnings. That's not cheap by any historic measure. And its free cash flow yield is around 2.8 percent. Luna: So the yield is below the ten-year Treasury, which is around 4.3 percent. That's a tough comparison. Lucas: It is. Buffett has said in the past that he looks for a free cash flow yield above the long-term bond rate. Apple doesn't clear that hurdle today. But he's not selling because he sees the services transition as a long-term moat. The question is whether new buyers at this price get the same margin of safety. Luna: That's where the 'price versus value' discipline matters most. If you bought Apple five years ago, you're sitting on huge gains. But if you're starting a new position today, you have to accept a lower expected return. Lucas: Right. And that's exactly the kind of decision that a concentrated portfolio forces you to make. You can't own everything. So you have to rank your opportunities. JPMorgan, for example, was up 3 percent this week, but it trades at about 13 times earnings with a dividend yield over 2 percent. That's a completely different risk-reward profile than Apple. Luna: And JPMorgan actually has a higher free cash flow yield—around 4.5 percent—which clears the bond yield hurdle. Lucas: It does. So if you're running a concentrated portfolio, you might ask: should I own Apple at 33 times earnings or JPMorgan at 13 times? Or should I hold cash and wait for a better opportunity? Buffett is effectively saying, 'I don't see enough compelling ideas, so I'll wait.' Luna: But isn't that a luxury of size? Berkshire can't buy a small company without moving the market. For a retail investor, there are probably plenty of small- and mid-cap stocks that are reasonably valued. Lucas: That's a fair point. The Russell 2000 is flat over the past week at 3,010. Small caps have been lagging large caps for years. There are definitely individual names trading at single-digit earnings multiples with growing free cash flow. The challenge is finding the ones that aren't value traps. Luna: So the Buffett lesson isn't 'hold cash and do nothing.' It's 'have a framework for what you're willing to pay, and stick to it.' Lucas: Exactly. And that framework should include a sell discipline too. Because the hardest part isn't buying at the right price—it's knowing when to sell. If Apple hits $350, do you trim? If it drops to $250, do you buy more? Most investors don't have a pre-planned answer. Luna: Buffett has said his ideal holding period is forever. But even he sells. He sold most of his airline stocks during the pandemic. He sold IBM after holding it for years. So 'forever' really means 'as long as the thesis holds and the price is reasonable.' Lucas: Right. And that's a nuanced take that doesn't make for a good headline. But for someone building a concentrated portfolio, it's the most important thing to internalize. You need a thesis with specific, falsifiable criteria. If those criteria break, you sell. If the price overshoots your estimate of intrinsic value, you sell at least a portion. Luna: Let's make it concrete. Suppose you own a stock that's doubled in a year. The company's fundamentals are still strong—growing revenue, expanding margins. But the price to earnings ratio has gone from 15 to 30. What do you do? Lucas: That's exactly the situation Buffett faces with Apple today. The business is arguably better than it was five years ago—services revenue is higher, the ecosystem is stickier. But the multiple has expanded significantly. He's holding because he thinks the long-term compounding is still there. But he's not adding. Luna: So he's holding, not buying. That's a distinction many investors miss. Just because you own it doesn't mean you have to buy more at any price. Lucas: And that's where the cash pile comes from. He's letting his winners run, but he's not chasing them. The new money—the insurance float and operating earnings that flow in every quarter—he's parking it in Treasuries because he doesn't see a better option. That's the discipline. Luna: So for a retail investor, the takeaway might be: if you're sitting on cash, don't feel pressured to deploy it just because the market is at all-time highs. Wait for your pitch. Lucas: Exactly. And if you already own stocks that have run up, ask yourself: would I buy this stock today at this price? If the answer is no, you should consider trimming. Not necessarily selling everything, but at least reducing your exposure to a level you're comfortable with. Luna: That's a good rule of thumb. It forces you to separate your emotional attachment to a stock from the cold math of expected returns. Lucas: And it's what Buffett does, whether he's looking at Apple or a small regional bank. The cash pile is just the visible result of that discipline over decades. It's not a market call. It's a valuation call. Luna: So going forward, what should listeners watch? If the market corrects, Buffett will likely deploy some of that cash. But if the market keeps grinding higher, the cash pile might keep growing. Lucas: I'd watch Berkshire's buyback activity. If they start aggressively buying back their own stock, that's a signal they see value in their own shares relative to the market. If they're not buying back much, it means they think even Berkshire's stock is fully valued. Luna: And they haven't been buying back much recently, have they? Lucas: No. In the first quarter of 2026, Berkshire spent less than $2 billion on buybacks. That's down from $4 billion a quarter in 2025. So even Buffett thinks Berkshire is not a screaming bargain right now. That's a pretty strong signal about the overall market. Luna: All right, so the big question for us as stock pickers: are we being disciplined enough to wait, or are we just buying because we feel like we have to? Lucas: That's the question worth asking yourself before your next trade. Thanks for listening, and we'll be back tomorrow with another episode.