The Dow Jones opened flat on Tuesday as the stock market struggled for direction. It comes as high-net worth investors increasingly brace their portfolios for a stock market downturn.
According to a new survey by UBS Global Wealth Management, more than half of millionaire investors now expect a downturn before the end of 2020. And they are increasingly stockpiling cash in order to safeguard their portfolios.
This defensive play mimics Warren Buffett’s approach who is sitting on a record pile of cash at Berkshire Hathaway.
Trading action was muted at the open on Tuesday with the DJIA notching up little more than 19 points.
The S&P 500 and Nasdaq Composite were also unchanged. Bitcoin traded at $8,753.
UBS surveyed 3,400 investors with more than $1 million in investible assets. They found that 55% are bracing for a stock market selloff before the end of next year. The largest shadow hanging over sentiment, the survey revealed, was a lack of progress in the US-China trade war and the looming 2020 presidential election.
The polled investors had an average 25% allocation to cash, significantly higher the typical 5-10% cash holdings during a risk-on environment. It implies that investors are taking profits as the stock market hits record highs. They’re now waiting on the sidelines for better opportunities.
60% of investors say they’re looking to increase their cash position further over the coming months. 80% see increased volatility going into the next 12 months.
Millionaire investors are mirroring Warren Buffett’s current playbook. The Oracle of Omaha is sitting on a record pile of cash at Berkshire Hathaway. As CCN.com previously reported:
“The $122 billion cash pile is unusual for Buffett, who typically puts his money to work through acquisitions, stock buybacks or equity purchases… Berkshire Hathaway’s massive cash coffer has many wondering if a stock market crash is on the way.”
Buffett isn’t the only one nervous about a looming downturn. Nobel prize winning economist Robert Shiller sees “bubbles everywhere,” from the stock market to bonds to housing. Meanwhile, ‘Big Short’ investor Michael Burry warned of a bubble in passive investing which could trigger a collapse across the board.
Of course, not everyone is a stock market bear. Even at record highs, Fundstrat’s Tom Lee predicts “fireworks” before the end of the year as the Federal Reserve continues to lubricate the markets.
Last modified: June 14, 2020 9:52 AM UTC