Buffett's Berkshire Hathaway holds a record $397 billion in cash. Is a market crash coming — should you follow his lead?

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For most investors, nearly $400 billion in cash (1) would seem like a missed opportunity. But for Warren Buffett and Berkshire Hathaway, it's a deliberate strategy.

The conglomerate is now sitting on a record $397 billion in cash, cash equivalents and short-term U.S. Treasury bills, according to the company's latest filings — a war chest large enough to buy any of the hundreds of companies in the S&P 500.

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The eye-popping figure has fueled speculation across Wall Street and social media that Buffett is quietly preparing for a market downturn. After all, Berkshire has been selling more stocks than it's buying while its cash pile continues to grow.

So, does the Oracle of Omaha see a crash coming?

Buffett has always preferred patience over chasing markets

Buffett has built his reputation by buying great companies at attractive prices — not by staying fully invested at all costs.

In recent years, Berkshire has trimmed major holdings, including Apple, while struggling to find acquisitions or stock investments that meet Buffett's strict valuation standards.

He's made the same point repeatedly in shareholder letters: Berkshire would rather hold cash than overpay for businesses simply because money is available to invest. That approach may be especially relevant today.

The S&P 500 continues to trade near record highs and analysts argue U.S. stocks remain richly valued after a strong rally driven in part by enthusiasm around artificial intelligence.

For example, Capital Economics Chief Economic Adviser John Higgins highlights (2) that the S&P 500's cyclically adjusted price-to-earnings ratio (Shiller CAPE) has climbed above 40 — a milestone previously reached only around major market peaks like the dot-com era (3).

Read More: Millionaires under 43 hold only 25% of their wealth in stocks. Here's where their money is actually going

Protect yourself from a bubble pop

Elevated valuations don't guarantee a market crash, but they can prompt investors to think more carefully about diversification.