This Is the One Thing Warren Buffett Fears More Than Sitting on Cash

Warren Buffett has generated terrific, market-beating returns for years by focusing on investing in quality businesses at fair prices. That means he's often left sitting on the sidelines when there aren't any compelling buying opportunities. While he's no longer the CEO of Berkshire Hathaway (NYSE: BRKA)(NYSE: BRKB), the company's cash pile has grown significantly over the years and remains high under Buffett's successor, Greg Abel.

Sitting on cash isn't a huge concern for Buffett. Investing, after all, involves a long-term approach and mindset. There's something he fears much more than letting cash sit idle and not investing it in stocks. And it's something investors should fear as well.

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Buffett's more concerned about making a mistake

In an old letter to Berkshire's shareholders back in 2003, Buffett explained why he's OK with letting cash sit idle: he's more concerned about making a more costly mistake.

Our capital is underutilized now, but that will happen periodically. It's a painful condition to be in – but not as painful as doing something stupid. (I speak from experience.)

Buffett has always been focused on not losing money, and that's been a priority in his investing approach. The danger of investing too aggressively is that you could make a poor decision by buying a bad stock, incur losses, and tie up your money in that investment, potentially preventing you from using it for better purposes.

Berkshire has become one of the most valuable companies in the world by focusing on a disciplined investment strategy that emphasizes sound, safe decisions. Today, its market cap is over $1 trillion, and it's a rarity in the trillion-dollar club, being that it isn't in the tech sector.

Investors should consider Buffett's approach when investing in stocks today

In today's market, valuations have reached obscene levels. SpaceX stock is the latest and perhaps best example of that right now. Earlier today, the money-losing company's valuation was around $3 trillion, surpassing both Amazon and Microsoft, two of the most successful businesses in the world.

Retail investors have been eager to jump on SpaceX and other stocks out of fear of missing out on potential gains. Instead, the bigger fear should be buying at ridiculously high levels that may set them up for significant losses later.

While you might not necessarily want to avoid buying stocks entirely (there are, in fact, many cheap options in tech), Buffett's words are worth considering because the biggest mistake may not be missing out on the next big thing, but rather buying into the hype and taking on considerable risk.

David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Berkshire Hathaway, and Microsoft. The Motley Fool has a disclosure policy.