Marc Rowan, the billionaire founder of Apollo Global Management, one of the largest asset management firms globally, is expressing serious concerns about the current market scenario. Despite the S&P 500 and Nasdaq Composite frequently reaching record highs, Rowan perceives a significant risk of a major market correction, estimating the chance at 35% or higher in the near future.
Rowan’s apprehension comes even as his firm recently reported surpassing $1 trillion in assets under management for the first time. This milestone highlights Apollo’s growth; however, Rowan remains cautious, emphasizing the importance of preparing for a potential downturn. He cites “out of the box” factors that might disrupt the market, such as tariffs or inflation driven by geopolitical tensions, which he believes could derail the current positive economic indicators and strong earnings reports.
For investors, the implications of Rowan’s warning are substantial. Historically, Berkshire Hathaway stands out as a resilient stock during tumultuous market periods. The company has consistently outperformed the market during significant downturns, such as the dot-com crash in 2000 and the financial crisis in 2008. In 2000, while tech stocks were plummeting, Berkshire posted a nearly 27% gain. Similarly, even in 2008, despite facing challenges, Berkshire secured better results than the broader market, leveraging the downturn to negotiate favorable deals with capital-hungry companies.
Berkshire Hathaway’s track record is impressive across the years, demonstrating its ability to not only withstand but thrive during market corrections. Notably, in each year since 2000 when the S&P 500 saw negative returns, Berkshire outperformed the index by an average of 18 percentage points. This consistent performance strategy is bolstered by its substantial liquid assets—approximately $400 billion available in cash and short-term treasuries—positioning the company to seize opportunities even when the market is down.
Nevertheless, it’s essential to acknowledge that Berkshire’s conservative investment approach has resulted in a relative underperformance compared to high-growth tech stocks recently. Over the past year, while the S&P 500 gained 25.7%, Berkshire’s stock declined by 5.3%. This divergence raises the question of whether now is a suitable time to invest in Berkshire.
If Rowan’s forecasts regarding inflation, tariffs, or geopolitical issues come true, the market could see significant declines, particularly in overvalued tech sectors. In such scenarios, Berkshire Hathaway could emerge as a prime investment, offering stability and potential growth.
With its stock recently trading around 1.4 times book value and considering the historical resilience showcased by its leadership under Warren Buffett, some investors view this as an opportune moment to add Berkshire Hathaway to their portfolios. Confidence in the firm’s ability to navigate challenges remains strong, particularly as Greg Abel takes the reigns from Buffett, prompting discussions about the long-term viability of the company’s investment strategies.
