Name: Warren Buffett Preparing For A Crash Like 1929
Uploaded: 2025-07-29T18:15:37.000Z
Duration: 17 min 49 s
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Warren Buffett has been acting really weird.

He has been massively selling most of his stocks.

In fact, if you look at his portfolio, he has now more cash than stocks.

And the only reason that you would do something like that is when you are preparing for a massive crash so that when everything collapses, you have all the cash in the world and you will start buying all of his stocks at a huge discount.

Warren Buffett is known to take advantage out of crises.

He timed 2008 financial crisis so accurately that when everybody was suffering, Warren Buffett became the richest man in the entire world.

So let's try to figure out why Warren Buffett is sitting on 300 billion dollars worth of cash, why he has been selling massively all of his stocks the last 2 years.

So if you are ready, give this video a thumbs up and let's dive right into it.

To understand what is happening, we first have to understand what is a P-E ratio.

A lot of you might already know what is a P-E ratio.

It's one of the indicators that you can take a look at the stock market is how much investors are willing to pay for every dollar of a profit that companies would possibly make.

And this is a very basic indicator, it's not the only thing that you should look at when you are analyzing stocks, but it's one of the things that you look at.

Because if investors are suddenly overpaying for the dollars of the profits that corporations are making, that is a sign that you should be paying attention to.

Let's say the price of the stock is 100 dollars, but the company made a profit of 5 dollars.

If we take 100 and divide it by 5, then that is a P-E ratio of 20.

So if investors are buying the stock for 100 dollars and it made only 5 dollars, that means that investors are paying 20 dollars for every dollar of a profit.

The higher the P-E ratio, the more the investors are overpaying for the stock.

And the reason could be that investors believe that this company is going to make a lot more money in the future and that's why they are willing to overpay for that stock today.

For example, you will see pretty often high P-E ratio for tech stocks because technology companies are believed to make much more money in the future.

If you look at the P-E ratio of Tesla, you will see that it's over 100.

And that's because people who are paying so much money for the Tesla stock, it's because they believe that Tesla is going to be astronomically much more profitable sometime in the future than today.

Whether that will happen or not, that's a completely different question.

But what is important to pay attention is that, what is the P-E ratio of the entire S&P 500?

S&P 500 represents the entire US economy because it represents all the 500 major companies in the US.

If you can find that out, you can find out whether the entire market is overvalued or undervalued because you are not picking one single stock but you are looking at the entire market.

So if you look at the P-E ratios, you will see a clear pattern.

And then suddenly you see that it falls down to 11.

And that's because it was one of the major crushes in the history of the S&P 500.

When investors overpaid, they started buying a lot of stocks thinking that the stock market is going to grow forever.

And then a reality check came in, and the market crushed and investors began to sell because they realized that they have overpaid so much for the stocks.

Back in the days, we did not have technology companies.

So nobody was assuming that these companies are going to make so much money in the future.

We did not have Nvidia or Google or Amazon.

We had traditional companies such as Johnson and Johnson or beverage type of companies.

But if you go back to 1990s, you will see that, again, we had a huge decline in the P-E ratio of the S&P 500.

A good P-E ratio is anything between 15 to 18.

Anything above that is considered to be a very high P-E ratio.

And just maybe the stock might be overvalued.

For certain industries, it could be slightly different.

If you're looking at a P-E ratio, for example, of a technology company, then you might assume that the P-E ratio could be slightly higher there.

But if you're looking for a P-E ratio of a car company such as Ford, then probably a P-E ratio of over 10 is already overvalued because you don't assume that Ford is suddenly going to build flying cars that will revolutionize the entire world and they will be making a lot of money sometime in the future.

It's a very traditional, predictable business that they've been selling these cars for the last 100 years.

However, if you look at this period, you will not see a stock market crash.

So why on earth, when the P-E ratios have been adjusted from 23 to 15, the stock market did not crash back in the 1990s?

And that's because there are two reasons why P-E ratios can drop.

Number one is when stock prices collapse, and that's a massive stock market crash.

That means that P-E ratios have lowered down.

But the second reason could be is that corporate earnings and profits start to rise and they will match the current stock prices.

So let's say in this case, we have like the stock price is 100 and the profits is 5.

And that's why we have a P-E ratio of 20.

Now let's imagine for a moment that the profits of the company is going to rise to $10 per share.

So we have to take 100 and then we have to divide it by 10 and that will give us 10.

So the P-E ratio now is going to be 10 and not 20.

So the price of the stock remained the same.

However, because the corporate profits have risen, the P-E ratios have gone down.

And that's why back in the 1990s, when the internet revolution was taking place and we had a lot of tech companies that emerged, they started making a lot of money.

This was the period when Google appeared.

This was the time when Amazon was created and most of the tech companies that you know today.

And that's why corporate earnings started to rise dramatically and P-E ratios started going down.

So a sharp decline in P-E ratio does not necessarily mean that there is a stock market crash.

It could basically mean that corporations are now making much more money and they reflect the stock prices they are being traded in the market.

However, if you look very closely, you will see another huge increase in the P-E ratio of the S&P 500.

It more than doubled in such a short period of time.

This is when the dot-com bubble was happening.

When the P-E ratios have increased so much, everybody knew that the stock market is in a bubble and tech companies have been overvalued.

Because investors used to think that all the stock markets are growing, all the stocks are growing tremendously, and people thought that if they keep buying internet stocks, they will never collapse.

They started buying, stocks started to rise dramatically, but these companies were not making as much profit.

And that's why P-E ratios began to rise dramatically.

But at a certain time, people realized that it's a bubble and the entire stock market crashed.

And that's why you see that P-E ratios have fallen from 33 to 25.

In early 2000s, the stock market crash reached its peak when the stocks collapsed by 78% and P-E ratios have reached 45.

The stock market collapsed by 78% to the point where earnings did not match the stocks at all and that's why P-E ratios have reached 45.

Over the next couple of years, P-E ratios began to fall down because the corporations that survived the dot-com bubble, they started building their businesses, restructuring their entire business model, and started making money.

And that's why P-E ratios over the next couple of years adjusted.

Most of the internet companies entirely disappeared at the peak of the dot-com bubble when the stock market crashed by 78%.

In fact, if I am not mistaken, Amazon stock also crashed by like 95 or 97%.

And if they haven't secured a deal right before the crash, Amazon today wouldn't be one of the most successful companies in the world.

So by looking at the P-E ratio of the entire S&P 500, we can have a picture either the stock market is overvalued or undervalued.

So if the P-E ratio today is really high, we have to ask ourselves the question is that, are corporate profits are going to catch up the P-E ratio on the stock prices or it's going to be the other way around, where stock prices have to fall down in order to reflect the real corporate profits.

Another major crash was the 2008 financial crisis when P-E ratios have reached an all-time high.

The stock market was falling down, everybody was selling their stocks, and everybody thought that this is the end of the world, until the Federal Reserve stepped in and injected the economy with trillions of dollars of cheap money, and that's why corporate profits began to rise.

If it wasn't for all of this cheap money that came from the Federal Reserve, the corporate profits wouldn't have risen and this P-E ratio wouldn't have started this high.

Since then, the economy has been doing pretty good and P-E ratios have been around 15 to 20 which is a very normal rate.

However, what you see here is that in 2021, P-E ratios have fallen down from 38 to 19.

But we did not have a market crash back in 2021.

The only real market crash that we had was in 2022 when the Federal Reserve hiked the interest rate.

And that's because in 2020 and 2021, the Federal Reserve injected the economy with so much cheap money that corporations borrowed this money almost at 0% interest rate.

And that means that if you take a look at their financial statements, suddenly you will see huge profits.