Warren Buffett is testing the age-old adage that ‘talk is cheap’

Actions speak louder than words. It’s a concept that Abraham Lincoln famously echoed in his 1860 Cooper Union Address, and there are other well-known variations of the same idea: “What you do speaks so loudly that I cannot hear what you say.” “Deeds, not words.” “Talk is cheap.”

Investors may want to keep the sentiment front of mind as they scour Warren Buffett’s annual letter to Berkshire Hathaway (NYSE:BRK) shareholders for insight into how the legendary stock picker might be thinking about current market conditions, especially as the 2025 edition contains a glaring contradiction. After waxing poetic about trust, the nature of mistakes and the ability of a single good decision to compound over time, Mr. Buffett addressed a growing perception among some commentators that the company’s cash stockpile had become “extraordinary.”

“Berkshire shareholders can rest assured that we will forever deploy a substantial majority of their money in equities,” he wrote. “Berkshire will never prefer ownership of cash-equivalent assets over the ownership of good businesses, whether controlled or only partially owned.”

Piles of cash

The comment is cutting because it’s the exact opposite of what he’s actually doing. Berkshire’s cash pile swelled to a record $334 billion by the end of last year, double what it was a year earlier. The move could be interpreted as an ominous signal for current valuations and seems to suggest that Mr. Buffett simply doesn’t see any attractively priced businesses worth purchasing at the moment. His comments, furthermore, came with a full acknowledgment about the risk of holding too much cash.

“Paper money can see its value evaporate if fiscal folly prevails,” he continued. “In some countries, this reckless practice has become habitual, and, in our country’s short history, the US has come close to the edge. Fixed-coupon bonds provide no protection against runaway currency.”

Make no mistake, though. Mr. Buffett threw cold water on any speculation that Berkshire might abandon its long-held strategy to forgo dividends in choosing to “reinvest rather than consume.” That combination—a strong long-term endorsement of equities, a growing pile of cash, and a rejection of returning capital to shareholders—means that Berkshire is navigating historically high valuations with its trademark patience, waiting for the right moment rather than chasing potentially inflated prices. 

Buffett indicators

Indeed, the so-called “Buffett Indicator” that was popularized by the world’s most famous investor back in 2001 shows that the market is strongly overvalued relative to gross domestic product, at least by historical standards, and there’s some evidence that the biggest indexes may be starting to follow Mr. Buffett’s lead, with the tech-heavy Nasdaq Composite down 1% so far this year after rising nearly 29% in 2024. Exactly how steep a selloff would need to be before Berkshire starts buying again is the trillion-dollar question. The company’s huge size, meanwhile, limits its ability to find transactions that would make a substantial impact.

While Berkshire has been reducing its stakes in companies like Apple (NASDAQ: AAPL) and Bank of America (NYSE: BAC), the holding company is continuing to increase investments in Japanese conglomerates Itochu, Marubeni, Mitsubishi, Mitsui and Sumitomo. The strategy was first unveiled in 2020 and mentioned again in Berkshire’s letter to investors last year. This time around, Mr. Buffett repeated how he’d initially been drawn to them because of their attractive valuations at the time.

“We simply looked at their financial records and were amazed at the low prices of their stocks,” he wrote. “As the years have passed, our admiration for these companies has consistently grown.” That’s “words into action” that has been consistent for decades now.

But back to the beginning of the annual letter. Mr. Buffett opened it by recognizing his responsibility to shareholders, saying: “In addition to the mandated data, we believe we owe you additional commentary about what you own and how we think.” This year, however, it’s not so much the written words that are most interesting, but the data itself. As Lincoln said back in that speech 165 years ago, “actions, under such responsibility, speak still louder.”