Warren Buffett's Forecast Proved Incorrect -- and It's Cost Him $53 Billion Over the Last Year

There's no denying that Warren Buffett is one of the world's most brilliant stock pickers. The impressive gains Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) continues to dish out prove as much.

To say Buffett is 100% right 100% of the time, however, would be inaccurate. He gets things wrong on occasion, too. For instance, after steering food company Heinz into what turned into a disastrous merger with Kraft back in 2015 to create now-struggling food giant Kraft Heinz (NASDAQ: KHC), Buffett finally admitted in 2019 that he "overpaid" for Kraft. The massive food company recently decided to split itself up again, if that tells you anything.

This isn't the Oracle of Omaha's biggest misstep of late, though. Rather, Buffett's biggest recent bungle isn't an investment he made but one he didn't make. And it's cost him $53 billion over the past year.

Image source: The Motley Fool.

Berkshire's kept too much on the sidelines at the wrong time

Anyone reading this likely knows Berkshire Hathaway's been sitting on a large amount of idle cash for a while now. What most people may not realize is just how much cash, and just how long it's been idle. Buffett's been largely on the sidelines since the third quarter of last year, when it reported that it was sitting on $325 billion in cash, versus Berkshire Hathaway's then market cap of just under $1 trillion. Since then, the conglomerate's uninvested cash hoard has grown to $344 billion, averaging $339 billion for the three reported quarters since then.

Connect the dots. Without explicitly saying it, Buffett's clearly just not seen any worthy buying opportunities during this time.

And yet, the market's still moved higher since then. The S&P 500 has gained 15.7% since last September, in fact. Had Berkshire Hathaway simply bought and held a basic index fund with its uninvested cash during this 12-month span, the company would be worth roughly $53 billion more than it is right now.

Now, it's admittedly easy to second-guess any decision with the gift of hindsight. There's also no arguing that Buffett's concern at the time (and in the meantime) is reasonable -- the market's trailing and forward-looking valuations have both reached uncomfortably steep levels, leaving stocks ripe for a rather serious correction.

Even in Buffett's own words, though, "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price." The market may be expensive as a whole here, but that's mostly because the market's very biggest companies (like the "Magnificent Seven") have raced to wildly expensive prices. There are plenty of wonderful companies still trading at fair prices at this time. Berkshire isn't buying any of them. Indeed, it's selling pieces of a bunch of the ones it already owns, undermining Buffett's argument that his favorite holding period is truly "forever."

And some statistics and data confirm that this short-term-minded hesitation is a mistake.

You can't afford to miss out on the market's few "best" days

Your stocks already have good and bad days, but in the long run, there are more good ones than bad ones. That's how the S&P 500 manages to achieve an average annual gain of about 10% per year, even if it loses ground in some years.

What you may not realize is that most of the market's long-term gains are driven by a tiny number of trading days in any given year. Researchers with Wells Fargo crunched the numbers, reporting earlier this year that not being fully invested during just the market's 30 best days over the course of the past 30 years would have dialed your average annual gain in an S&P 500 index fund back from 8.4% to 2.1%.

It's an eye-popping concern simply because you can't possibly predict when those 30 best days might materialize. You'll need to be "in" the stock market before they unfurl.

And mutual fund company Hartford's deeper digging into the matter further confirms that investors' biggest risk isn't being in the market at the wrong time. It's not being in it all the time. Specifically, Hartford notes that between 1995 and 2024, half of the S&P 500's best 50 days were seen in the middle of bear markets, while another 28% of them materialized during the first two months of new bull markets, when many investors were still likely to be on the sidelines.

More to the point here and now, yes, Warren Buffett's Berkshire Hathaway has missed out on a lot of gains it arguably should have reaped.

You're smart, too

It's still difficult to question or criticize Buffett. Again, Berkshire's long-term track record speaks for itself. And he may well be vindicated sooner than later for refusing to deploy a huge amount of cash in anything, whether that be publicly traded equity or privately owned businesses. It's also difficult not to notice there's something "off" about the U.S. stock market, as well as the underlying global economy, even if it's not clear exactly what's wrong. Buffett probably senses it, too.

This may also be a scenario, however, where average individual investors don't necessarily want to read too much into a decision Buffett has made for Berkshire, since his reasoning and concerns may not apply to you. For instance, Berkshire Hathaway's multibillion-dollar purchases and exits can push a stock's price measurably higher and lower, respectively, negating much of the value he's trying to extract. Most ordinary investors don't have that problem.

Whatever the case, the bigger bottom line is simply this: Even if he's a genius, Buffett isn't always right. There's much to be said for trusting your own gut, even if it's telling you something different from what the crowd or experts are. And the more personally experienced you are with the market, the more you should be willing to trust your own instincts and not strictly rely on someone else's ideas and actions.

Just some food for thought.

Wells Fargo is an advertising partner of Motley Fool Money. James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool recommends Kraft Heinz. The Motley Fool has a disclosure policy.