Financial Samurai Newsletter May 5, 2024: Buffett Raises Cash

This is a free Financial Samurai newsletter that was published on May 5, 2024. Every week, I come out with a free weekly newsletter to help readers achieve financial freedom sooner rather than later. Join 65,000 other readers and subscribe here. This way, you'll never miss a thing.

Financial Samurai began in July 2009 and is the leading personal finance website today with over 1 million organic pageviews a month. Everything is written based off firsthand experience because money is too important to be left up to pontification.

Sam is the pioneer of the modern-day FIRE movement. He attended The College of William & Mary for undergrad, got his MBA from UC Berkeley, and worked at Goldman Sachs and Credit Suisse for 13 years until he retired in 2012 at age 34. Sam is one of the rare personal finance writers who actually has the background and experience in finance.

You can learn more about Sam Dogen by clicking his About page.

Financial Samurai Newsletter May 5, 2024: Funny Expectations

Dear Financial Samurais,

Living a good life often involves meeting or exceeding reasonable expectations. Last week, when the S&P 500 rallied following Fed Chair Jerome Powell's indication that the committee wouldn't raise the Fed Funds rate this year, I couldn't help but chuckle.

Just a couple of months ago, the entire street was anticipating between three to four rate cuts! However, April's jobs and wage growth slowed, and the unemployment rate edged up to 3.9%. Additionally, auto insurance premiums and rent growth decelerated. I will stand by my initial rate cut prediction of July 2024.

US job openings versus Fed Funds rate - Financial Samurai newsletter

This week, I spent too much time making an argument against investing in international stocks. I'm aware that Modern Portfolio Theory suggests allocating a portion of portfolios to international stocks based on their market cap weightings. However, I firmly believe in American exceptionalism, particularly considering how well we've fared since COVID.

Have a read of my post, Why Investing In International Stocks Is Unnecessary, to learn everything you need to know about investing in something you probably don't know much about! 

Rate Cut And An Already Hot Housing Market?

Two rate cuts in 2024 are firmly back on the table following the April jobs and wage growth numbers. What's intriguing is that, except for the cities that experienced significant increases followed by overbuilding, the housing market remains robust.

I have observed over 15 examples of single-family homes on the west side of San Francisco selling well above asking price and Redfin's estimates. This price action is somewhat perplexing considering that mortgage rates have only slightly decreased in 2024, and buyers could have underbid on many properties listed in 2023 due to less competition.

Fed funds rate forecast by Morgan Stanley

Thanks to your feedback, I've compiled a post titled, Understanding Why People Get Into Property Bidding Wars, which offers insightful sales examples and feedback. Additionally, I've realized that engaging in a bidding war may actually be a rational decision. It's just not my cup of tea. 

Following the post, I developed a specific buying strategy that future homebuyers should consider implementing in a recovery. In essence, if you anticipate the housing market to rebound, it's preferable to buy one or two years too early rather than just one month late!

See: Analyzing Home Price Dynamics: A Guide To Smarter Buying

During my time at UC Berkeley's business school, I found great value in learning through the case study method. This post on smarter home buying adopts a similar approach, presenting real-time examples, backed by hard data, and offering logical analysis.

My aim is to empower all of us to become better critical thinkers and to rely less on emotions, enabling us to outperform the masses.

Buffet Is Raising Even More Cash

Finally, the annual Berkshire Hathaway shareholders meeting took place on Saturday. The main takeaway for me was that Warren Buffett sold 116 million shares of Apple in the first quarter, which accounts for 12.9% of its position. He also mentioned that he doesn't mind accumulating more cash in the current environment, stating, “It's just that things aren't attractive.”

Berkshire Hathaway Cash Balance - Financial Samurai newsletter

At the end of 1Q, Berkshire had $182 billion in cash. The balance is heading toward $200 billion soon, or about 23% of Berkshire Hathaway's market capitalization. 

If the greatest investor on earth is raising cash and happy to earn 5%+ risk-free interest in Treasury bonds, we should too with a portion of our assets. 

Warren Buffet Worries About Artificial Intelligence

One final point Warren mentioned was his comparison of AI to the nuclear bomb. He expressed fear about the immense power of AI and the challenge of controlling it once unleashed. “The power of that genie scares the hell out of me and I don't know how to get the genie back in the bottle.”

Individuals have no means to prevent AI from potentially taking over jobs. The transition of OpenAI from a nonprofit to a for-profit entity illustrates how even the wealthiest individuals cannot resist the lure of maximizing profits.

Therefore, the best strategy to hedge against AI taking over jobs, including those of our children, is to invest in AI itself. Personally, I aim to establish a $500,000 position in private AI companies within the next three years. I'm halfway there through investments in several venture capital funds.

For those without access to top closed-end VC funds, investing in the Innovation Fund with a minimum of $10 is an option. The Innovation Fund has publicly disclosed investments in OpenAI and Anthropic, the two main large language model AI companies. 

To Your Financial Freedom,


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