Buffett’s Cash Strategy
How Berkshire Hathaway Profits from Market Crashes
Introduction
Warren Buffett is famous for his disciplined approach to investing, particularly when it comes to holding cash and deploying it strategically during market downturns. Since 1995, Berkshire Hathaway has repeatedly built up large cash reserves during periods of market exuberance and then spent aggressively when markets corrected. Buffett’s oft-quoted principle, “Be fearful when others are greedy, and greedy when others are fearful,” is more than just a saying—it’s a strategy that has defined Berkshire’s investment playbook for decades.
This post will analyze key periods since 1995 when Berkshire Hathaway accumulated cash and later used it during market corrections. We’ll explore the dot-com crash (2000-2002), the Great Financial Crisis (2007-2009), the market boom and cash buildup of the 2010s, and more recent deployments in 2020-2022. Throughout, we’ll use shareholder letters, interviews, and financial data to illustrate Berkshire’s disciplined approach to investing.
Late 1990s: Cash Builds Amid the Dot-Com Bubble
During the tech boom of the late 1990s, U.S. stock markets soared, particularly in the technology sector. While many investors rushed into internet stocks, Buffett largely sat out the mania. He found few businesses trading at reasonable valuations and resisted pressure to invest in technology stocks he didn’t fully understand. As a result, Berkshire’s cash holdings grew significantly, reaching over $15 billion by 1998, up from just $1.3 billion in 1996.
As the dot-com bubble burst from 2000 to 2002, Berkshire was ready. By the end of 2001, the company held $67.8 billion in cash, a record amount at the time. With stock markets in freefall and credit markets in turmoil, Buffett moved in to scoop up bargains. His biggest move was into junk bonds, where he invested nearly $8 billion in 2002 when bond markets were deeply distressed. By the end of 2002, Berkshire’s cash pile had shrunk to $12.7 billion, signaling that Buffett had deployed over $50 billion into investments at rock-bottom prices. His patience during the boom and decisiveness during the bust resulted in massive gains during the subsequent recovery.
2007–2009: The Great Financial Crisis – Deploying Billions Amid Panic
Heading into 2007, Berkshire Hathaway had around $44 billion in cash, after years of careful investing and restraint. Buffett had been warning about high-risk financial products, particularly subprime mortgages, and largely avoided them. When the housing market collapsed and triggered a global financial crisis, Berkshire’s cash position became a powerful weapon.
During the 2008 meltdown, Buffett struck several headline-grabbing deals, injecting cash into Goldman Sachs ($5 billion), General Electric ($3 billion), and Wrigley’s debt ($4.4 billion), all on highly favorable terms. These preferred stock investments came with lucrative dividend yields (10%+) and stock warrants, giving Berkshire both steady income and potential upside when the companies recovered.
By the end of 2008, Berkshire’s cash had dropped to $25.5 billion from $44.3 billion a year prior—a clear sign that Buffett had been aggressively deploying capital in distressed markets. His belief in buying when others were panicking was further reinforced in an October 2008 New York Times op-ed, where he wrote: “A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful.”
These investments paid off handsomely. Goldman Sachs and GE recovered, and Buffett’s investments netted Berkshire billions in profits over the following years.
2010s: High Cash, Few Crashes – The Patience Game
The aftermath of the Great Financial Crisis led to a decade-long bull market with few major corrections. With stock prices elevated, Buffett found fewer opportunities that met his strict valuation criteria. As a result, Berkshire’s cash pile ballooned, exceeding $100 billion by 2017 and reaching $128 billion by 2019—the highest in the company’s history at the time.
Buffett described this cash buildup as “the elephant gun” waiting for the right acquisition, but attractive deals remained elusive. One of the biggest moves Berkshire made was the $32 billion acquisition of Precision Castparts in 2016, an industrial parts manufacturer whose stock had declined during an oil slump. However, beyond that, Buffett largely held back, watching valuations rise and waiting for a correction that never fully materialized in the 2010s.
One of the few times he deployed cash was in 2011 when Bank of America needed a capital infusion during a credit downgrade scare. Buffett invested $5 billion into preferred shares, securing a 6% dividend and stock warrants. The deal turned into another Buffett classic—Berkshire later exercised its warrants, acquiring a massive stake in Bank of America at a steep discount.
2020: The COVID-19 Crash – Holding Fire, Then Deploying Overseas
As the COVID-19 pandemic struck in early 2020, stock markets plunged by 35% in just a few weeks. Buffett’s response surprised some observers—he did not make any major stock acquisitions during the crash, and in fact, he sold Berkshire’s airline stocks (which later rebounded, though unpredictably). His reasoning? The extraordinary Federal Reserve and government stimulus stabilized markets so quickly that bargains evaporated faster than expected.
However, Berkshire did deploy cash strategically in other ways. In August 2020, Buffett invested $6 billion in five Japanese trading conglomerates (Mitsubishi, Mitsui, Itochu, Marubeni, and Sumitomo), highlighting his willingness to invest globally when U.S. markets didn’t present sufficient opportunities. Berkshire also ramped up share buybacks, purchasing over $24 billion of its own stock in 2020 alone.
2022: Inflation, War, and a Buying Spree
By 2022, with inflation soaring and interest rates rising, stock markets experienced a significant correction. The S&P 500 fell 20% in the first half of the year, and Buffett seized the moment. In Q1 2022 alone, Berkshire spent $51 billion on stocks—its largest buying spree in years.
Buffett’s biggest moves included:
Buying a 14% stake in Occidental Petroleum
Increasing Berkshire’s Chevron position fivefold
A $4.2 billion stake in HP Inc.
The $11.6 billion acquisition of Alleghany Corp., an insurance company
By mid-2022, Berkshire’s cash had dropped by nearly $40 billion from its 2021 highs, a clear signal that Buffett had finally found a buying opportunity worth deploying his reserves.
Conclusion: The Power of Cash & Patience
Berkshire Hathaway’s investment history since 1995 shows a clear and effective pattern: build cash in overpriced markets, spend aggressively when corrections hit. Buffett’s discipline has allowed him to strike major deals at the right time while avoiding overpaying when stocks are expensive.
His strategy offers a timeless lesson for investors:
Hold cash during market euphoria—cash gives flexibility and prevents poor decision-making.
Be ready to act when fear dominates—deploy cash into quality businesses when markets panic.
Patience wins—Buffett’s biggest gains came not from chasing trends but from waiting for the right opportunities.
In a world where many investors chase the next hot stock, Buffett’s methodical approach proves that sometimes, the best move is simply to wait—and then pounce when the moment is right.
