How Buffett Avoided This Round of the U.S. Stock Market Crisis

Core Conclusion

Since the beginning of 2025, the U.S. stock market has performed poorly, with technology stocks experiencing significant declines. The S&P 500 index has seen a maximum drawdown of 18.9% this year, while the Nasdaq index has experienced a maximum drawdown of 23.9%. Meanwhile, Berkshire Hathaway, led by Warren Buffett, has achieved an upward trend against the market. As of April 11, Berkshire (BRK-A) has seen its stock price rise by 15.1% this year, while the S&P 500 index has fallen by 8.8%, meaning Berkshire's stock price has outperformed the S&P 500 index by about 24 percentage points. Buffett's success in resisting the current downturn in the U.S. stock market is closely related to his time-tested and effective investment strategies, which can be summarized as follows:

(1) Timing stock positions at key moments. Buffett significantly reduced his stock positions in 2024, with cash and cash equivalents reaching the highest proportion of total assets since 1995. This reflects Buffett's concerns about the high valuations in the U.S. stock market and his belief that there are currently no sufficiently attractive companies for investment.

(2) Increasing industry diversification during crises. Buffett's industry allocation is usually concentrated within his circle of competence, but historically, when a financial crisis is anticipated, Buffett may increase investments in sectors such as energy, consumer discretionary, industrials, and healthcare to enhance the risk resistance of his portfolio.

(3) Focusing on stable returns with large capital. As his capital scale has expanded, Buffett has become keen on investing in energy and infrastructure, which typically require substantial capital investment and provide long-term stable and moderate returns, aligning with Berkshire's current investment goals given its massive scale.

In addition to investment operations, Berkshire's excellent performance in its operating business is a significant reason for its stock price reaching new highs this year. Based on the performance of the U.S. stock market since the beginning of the year, it is difficult to explain Berkshire's stock price gains solely through its stock investment portfolio. In fact, after 60 years of management by Buffett, Berkshire has become a world-renowned insurance and diversified investment group, with secondary market stock investments currently accounting for only a small portion of Berkshire's total assets. In 2024, Berkshire's operating business, excluding stock investment income, reported a pre-tax net profit of $53.9 billion, a year-on-year increase of 23.6%. The traditional operating business has delivered excellent results, receiving high recognition from investors, thus leading to stock performance that surpasses the broader U.S. market benchmarks.

Risk Warning: Geopolitical conflict risks, uncertainties in U.S. tariff policies, significant fluctuations in overseas markets, and historical experiences not representing the future, etc.

Report Body

1 Analysis of Buffett's Strategies in Response to the U.S. Stock Market Crisis

Since the beginning of 2025, the U.S. stock market has performed poorly, with technology stocks experiencing significant declines. The S&P 500 index has seen a maximum drawdown of 18.9% this year, while the Nasdaq index has experienced a maximum drawdown of 23.9%. Meanwhile, Berkshire Hathaway, led by Warren Buffett, has achieved an upward trend against the market. As of April 11, Berkshire (BRK-A) has seen its stock price rise by 15.1% this year, while the S&P 500 index has fallen by 8.8%, meaning Berkshire's stock price has outperformed the S&P 500 index by about 24 percentage pointsWarren Buffett successfully withstood the recent plunge in the U.S. stock market, which is closely related to his time-tested and effective investment strategies. In summary, the main measures include:

(1) Timing stock positions at key moments. Buffett's stock positions have been continuously decreasing since the end of 2021, particularly in 2024, where he significantly reduced his position in Apple Inc. and increased cash reserves. This reflects Buffett's concerns about the high valuations in the U.S. stock market and his belief that there are currently no companies with sufficient attractiveness for investment.

(2) Increasing industry diversification during crises. Buffett's industry allocation is usually concentrated within his circle of competence, but historically, when a financial crisis is anticipated, Buffett may increase investments in sectors such as energy, consumer discretionary, industrials, and healthcare to enhance the risk resistance of his portfolio.

(3) Focusing on stable returns with large capital. As the scale of funds expands, Buffett has become keen on investments in energy and infrastructure, which typically require substantial capital investment and provide long-term stable and moderate investment returns, aligning with Berkshire's current investment goals given its massive scale.

1.1 Berkshire Recently Significantly Outperformed the S&P 500

As of April 11, Berkshire Hathaway Class A shares (BRK-A) closed at $784,000 per share, with a year-to-date increase of 15.1%, reaching a new high of $808,029.5 per share during intraday trading on April 2. Berkshire Hathaway Class B shares (BRK-B) closed at $524.11 per share (1 Class A share can be converted into 1,500 Class B shares, Class B shares cannot be converted back to Class A shares, and Class B shares have lower voting rights), with a year-to-date increase of 15.6%. During the same period, the S&P 500 index decreased by 8.8%, meaning Berkshire's stock price outperformed the S&P 500 index by about 24 percentage points, significantly beating the U.S. stock market benchmark.

From the performance of the S&P 500 primary sector indices since the beginning of 2025, most sectors have performed poorly. Consumer discretionary, information technology, and communication services, which have a high weight of technology stocks, ranked at the bottom, with declines of 17.0%, 15.3%, and 9.1% respectively since the beginning of the year. Sectors with a stable style, such as consumer staples, utilities, and healthcare, have performed relatively well, with consumer staples leading the way, recording a 3.7% increase since the beginning of the year. Utilities and healthcare sectors have remained basically flat, with increases of 0.8% and a decrease of 0.5% respectively since the beginning of the year.

In terms of the performance of S&P 500 constituent stocks, Berkshire (BRK-B) ranks 30th among the 500 leading companies in the U.S. stock market year-to-date, showing a very strong performance. If we focus on the stock price performance of large-cap companies with a market capitalization exceeding $500 billion at the beginning of the year, Berkshire is the top performer among these large-cap companies, surpassing the second-place company, VISA (with a market capitalization of $590 billion at the beginning of the year) Since the beginning of the year, it has risen by 5.7%, about 10 percentage points.

From the performance of the U.S. stock market since the beginning of the year, if we consider Berkshire Hathaway as a company primarily engaged in secondary market investments, it is indeed difficult to explain Berkshire's significant excess returns relative to the U.S. stock market benchmark solely based on its stock investment portfolio. Specifically, in terms of secondary market stock investments, Berkshire's holding market value is approximately $271.6 billion, with the top five stock holdings contributing nearly 72% of the weight. Among them, the market value of Apple Inc. is $75.1 billion (down 20.8% year-to-date), American Express $45 billion (down 14.9% year-to-date), Bank of America $29.9 billion (down 17.7% year-to-date), Coca-Cola $24.9 billion (up 15.6% year-to-date), and Chevron $17.2 billion (down 5.3% year-to-date).

We believe that the excellent performance of Berkshire's stock price since the beginning of 2025 is mainly due to investors' recognition of Berkshire's operating business. As of the end of 2024, Berkshire's total assets were $1,153.9 billion, liabilities were $502.2 billion, and shareholders' equity was $651.7 billion. The secondary market stock investments ($271.6 billion) currently account for only a small portion of Berkshire's total assets.

Berkshire has performed exceptionally well in its operating business, which is an important reason for the stock price reaching new highs this year. In 2024, Berkshire's total operating revenue reached $371.4 billion, compared to $364.5 billion in the same period last year, a year-on-year increase of 1.9%. The operating business's pre-tax net profit, excluding stock investment income, was $53.9 billion, a year-on-year increase of 23.6%, indicating strong performance in traditional operating businesses. Including stock investment contributions, while deducting taxes and minority interest impacts, Berkshire's net profit attributable to shareholders was $88.995 billion (after tax), a year-on-year decrease of 7.5%, but far exceeding the market's previous expectation of $60.706 billion. The year-on-year decrease in net profit attributable to shareholders is mainly due to a significant reduction in profit contributions from stock investments compared to 2023, but the volatility of the stock market itself is not very meaningful for assessing Berkshire's operating business performance.

1.2 Recent Operating Performance of Berkshire Hathaway

After 60 years of management by Buffett, Berkshire Hathaway has become a world-renowned insurance and diversified investment group. Its insurance businesses include Government Employees Insurance Company (GEICO), Berkshire Hathaway Primary Insurance Group (BH Primary), and Berkshire Hathaway Reinsurance Group (BHRG). In addition to underwriting profits, the low-cost insurance float is also an important source of investment income for Berkshire. Besides insurance, Berkshire holds BNSF Railway, BHE Energy, Pilot Travel Centers, and numerous manufacturing, service, and retail companies, while also investing in a series of well-known enterprises in the secondary marketRegarding recent operating performance, Buffett stated in the latest annual report that Berkshire's performance exceeded expectations, despite 53% of its 189 operating companies reporting a decline in profits.

Specifically, Berkshire's insurance business achieved significant profit growth. The underwriting pre-tax profit increased from USD 6.91 billion in 2023 to USD 11.41 billion in 2024, with GEICO's pre-tax profit rising by USD 4.18 billion, marking the most outstanding performance. The pre-tax profit from insurance investment business rose from USD 11.58 billion in 2023 to USD 16.75 billion in 2024, mainly due to increased interest income from short-term investments.

The overall profitability of the railway and utility businesses improved in 2024. BNSF Railway's pre-tax profit slightly increased from USD 6.61 billion in 2023 to USD 6.65 billion in 2024, benefiting from higher unit volumes, improved employee productivity, and lower other operating costs, although it was negatively impacted by labor agreement-related expenses and legal litigation costs in the fourth quarter of 2024. BHE Energy's pre-tax profit rose slightly from USD 0.94 billion in 2023 to USD 2.29 billion in 2024, reflecting a decrease in estimated wildfire loss reserves for Pacificorp and increased earnings from the natural gas pipeline business; Pilot Travel Centers' pre-tax profit fell from USD 0.97 billion in 2023 to USD 0.61 billion in 2024, affected by the abandonment of international oil trading business and refocusing on North America.

The pre-tax profit of numerous manufacturing, service, and retail companies slightly decreased from USD 16.62 billion in 2023 to USD 16.23 billion in 2024. The decline in 2024 earnings reflects reduced revenues in the service and retail sectors, although this was partially offset by revenue growth in several manufacturing businesses.

The profit contribution from investment and derivative gains and losses in 2024 significantly decreased compared to 2023, mainly due to market price fluctuations of equity securities investments and exchange rate changes of certain investments. Buffett believes that both realized investment gains and losses from disposals and unrealized investment gains and losses from market price changes are usually not meaningful for understanding periodic performance or assessing the economic performance of operating businesses.

1.3 Buffett's Investment Philosophy and Allocation StrategyThe latest annual report shows that by the end of 2024, Berkshire's cash reserves will exceed $330 billion, reaching a record high, significantly increasing from over $160 billion at the end of 2023. Ample cash reserves reduce the risk of short-term market volatility faced by the investment portfolio while also preparing for future investment opportunities. As early as the shareholder meeting held in May 2024, Buffett mentioned that there are currently not enough attractive companies suitable for investment, reflecting concerns about the high valuations in the U.S. stock market. Before the market turbulence triggered by Trump's tariffs, Buffett had quietly adjusted his investment portfolio, adopting an unusually cautious defensive layout in the second half of 2024. In March 2025, Buffett stated in an interview with CBS that Trump's tariffs are "an act of war" and mentioned the negative experiences the U.S. has had with tariffs in the past.

Buffett makes timing decisions at critical moments. The proportion of stocks, bonds, and cash and cash equivalents in Berkshire's assets reflects Buffett's bullish or bearish outlook on the overall trends of stocks and bonds. Although this proportion may be affected by market value changes caused by fluctuations in stock and bond prices, such as a rapid decline in stock prices leading to a significant reduction in stock positions, it still reflects Buffett's investment preferences at different times in the overall trend. By the end of 2024, due to the continuous selling of excess holdings, Berkshire's cash rapidly accumulated, with cash and cash equivalents accounting for the highest proportion of Berkshire's total assets since 1995.

Looking back at Buffett's holdings from 1995 to the present, his stockholding ratio peaked in 1995, exceeding 85% of total assets. Until 1998, Buffett, concerned about high market valuations, significantly reduced his stock holdings and converted them into fixed-term bonds and some cash, with stock positions dropping from 76% at the end of 1997 to 37% at the end of 1999. Buffett has not made many significant timing investment decisions historically, but the effectiveness of timing has been quite evident. Between 2001 and 2002, during the burst of the U.S. internet bubble and the stock market crash, Buffett's stock position fell below his bond position at one point, during which bond yields were much higher than stocks, allowing Buffett to achieve good excess returns. By the end of 2004, the proportion of cash and cash equivalents held by Berkshire continued to rise, increasing from 7% at the end of 2001 to around 39% at the end of 2004. At that time, Buffett stated that he had a shotgun but could not find suitable prey. After 2005, Berkshire's stock position steadily increased, while the positions in cash and cash equivalents and bonds began to decline slowlySince the beginning of 2023, facing the overall high valuation risks of the U.S. stock market, especially in the technology sector, Warren Buffett has significantly reduced his stock positions.

Buffett's industry allocation is usually concentrated within his circle of competence. Before 2011, Buffett's industry allocation was focused on finance and consumer goods. After 2011, he gradually entered the information technology sector, forming a triad of information technology, finance, and consumption. Before the 2000 tech bubble, over 96% of Buffett's secondary market investments were concentrated in the finance and consumer goods sectors, with finance accounting for one-third and consumer goods for two-thirds. Subsequently, there was a trend of the proportion of consumer goods gradually shifting towards the finance sector; in the first quarter of 2007, the finance sector accounted for 42.5%, while the consumer goods sector accounted for 32.4%. In 2011, Buffett broke from tradition and heavily invested in IBM, marking the beginning of his investment in tech stocks, but this investment was not very successful. In 2016, Buffett began buying shares of Apple Inc., subsequently increasing his position to over 50% at one point. By the first quarter of 2020, tech stocks had risen to become Buffett's primary investment sector, with the high returns from investing in Apple making an outstanding contribution to his performance since 2018.

Starting in the first quarter of 2022, Buffett began to heavily invest in publicly traded companies in the energy sector. By the end of 2024, as Buffett significantly reduced his holdings in Apple, the finance sector once again surpassed the information technology sector in his portfolio. Currently, Berkshire's secondary market holdings show a configuration of "two super sectors" in finance and information technology, alongside "two strong sectors" in consumer goods and energy.

Buffett adheres to the fundamental principle that "the company's business must be understandable" in his investments, but continuous learning has also led to changes in his heavily invested sectors. In his early investments, Buffett fully understood the businesses in the consumer and finance sectors, allowing him to capture a series of quality companies such as See's Candies, Coca-Cola, Bank of America, and Wells Fargo. Although Buffett praised companies like Apple in 2011 for their asset-light, low-investment business models, he repeatedly stated that it was "difficult to judge Apple's situation in the next 10 years" when asked why he did not invest in Apple. This perhaps indicates that Buffett believed investing in tech stocks was beyond his circle of competence, thus maintaining a "watch but not buy" attitude towards Apple for a long time. After 2016, Buffett re-evaluated Apple from the perspective of consumer behavior, expanding his investment circle of competence through continuous learning, shifting his heavily invested sectors from the slowing growth of consumer goods to the robust development of the information technology sector. By 2024, U.S. stock market valuations had entered a high level, and due to concerns about the commercialization risks in the field of artificial intelligence and the significant uncertainties that the U.S. elections might bring to tax policies, Buffett significantly reduced his holdings in Apple, with Apple's position in secondary market stock investments dropping from nearly 50% at the end of 2023 to around 28% by the end of 2024

After the 2008 financial crisis and the 2022 Russia-Ukraine conflict, Warren Buffett increased investments in the energy sector to enhance the diversification and risk resistance of his investment portfolio. At the 2024 Berkshire Hathaway shareholder meeting, Buffett pointed out that the energy and infrastructure sectors typically require substantial capital investment and provide long-term stable and moderate investment returns, which aligns with Berkshire's current investment goals given its large capital base. Buffett's investments in utilities and railroads reflect his confidence in the long-term growth potential of these sectors. Additionally, Buffett holds a positive attitude towards the transition from traditional energy to renewable energy but believes it may require a transitional period; therefore, he is still investing in some traditional energy companies. Regarding new energy vehicles, investment decisions may be made based on the company's long-term value and market positioning when the industry landscape becomes clearer.

It is worth noting that a significant portion of Buffett's investments in the energy and infrastructure sectors is through controlling subsidiaries (such as BNSF Railway and BHE Energy), which are not reflected in secondary market investments.

Buffett has almost no restrictions on the proportion of single-stock holdings, and the concentration effect of stock returns is very evident, fully reflecting Buffett's bottom-up stock selection investment approach. From the number of shares disclosed in annual reports over the years, it can be observed that Buffett's number of shares is at an extremely low level in the industry, with the investment amount in the top 10 holdings accounting for the vast majority of the stock position.

As of the end of 2024, Berkshire's stock investment position in the secondary market is approximately $271.6 billion, a significant decrease from $353.8 billion at the end of 2023. Among these, the market value of the Apple holdings is $75.1 billion (a decrease of $99.2 billion from the end of 2023), American Express $45 billion (an increase of $16.6 billion from the end of 2023), Bank of America $29.9 billion (a decrease of $4.9 billion from the end of 2023), Coca-Cola $24.9 billion (an increase of $1.3 billion from the end of 2023), Chevron $17.2 billion (a decrease of $1.6 billion from the end of 2023), and Occidental Petroleum $13.1 billion (a decrease of $1.5 billion from the end of 2023).

Source: Pursuing Value, Original Title: "【Fangzheng Total】Analysis of Buffett's Strategies in Response to the U.S. Stock Market Crisis"

Risk Warning and Disclaimer

The market has risks, and investment requires caution. This article does not constitute personal investment advice and does not take into account the specific investment goals, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Investment based on this is at one's own risk