Buffett’s Latest Moves Are Startling

There has been plenty of uncertainty in the U.S. economy this year, as inflation and high interest rates have pressured consumers and businesses alike. Those factors aren’t likely to dissipate anytime soon, and the potential for market volatility might spur some investors to stay on the sidelines.

In unsure times, investors often scrutinize the actions of luminary investors like Warren Buffett, the icon and billionaire who sits at the helm of Berkshire Hathaway (NYSE: BRK.B).

Even though Buffett’s past investing prowess is unquestionable, some of the recent actions by the 94-year-old have raised eyebrows. This year, he has sold off substantial portions of some of the stocks that were once considered mainstays of Berkshire’s portfolio.

What may be more concerning is that Buffett has a lopsided ratio of sells to buys, meaning he’s sold a whole lot more stock than he has bought and, as a result, has amassed a $325 billion stockpile. These moves might make investors wonder if Buffett has lost faith in the market.

Why Did Berkshire Hathaway Stock Go Up?

Though Berkshire’s cash accumulation might draw attention, the firm still has plenty of skin in the game. In the third quarter of 2024, Berkshire realized $20.5 billion in investment gains, a major swing from the $29.7 billion investment loss the company took last year.

However, there is much more to Berkshire than just its investment portfolio. The company owns businesses in industries from insurance to railroads to aerospace. Due to Berkshire’s diverse composition, Buffett has insisted that the firm’s operating earnings offer a clearer picture of where Berkshire stands, because it removes the volatility of the company’s stock portfolio.

In Q3, Berkshire’s operating earnings fell by 6% year-over-year. However, because Buffett has made stock repurchases–a significant part of Berkshire’s strategy, operating income on a per-share basis increased 15% over last year.

Insurance is the most significant of Berkshire’s businesses. Through the first three quarters of 2024, the insurance segment’s investment income was 41% higher than last year while operating income for the rest of Berkshire’s segments, which include manufacturing, railroad, and utility operations, fell by 3% year-over-year.

Although the third quarter was not particularly strong for the company, investors have kept BRK.B on an upward trajectory. The stock is up 29% year-to-date, compared to the S&P 500’s 26.5% return.

What Stocks is Berkshire Hathaway Selling?

One of the main reasons why investors faith in Buffett has persisted is his legacy of making astute decisions. The iconic investor built Berkshire for the long haul, so the ups and downs of quarterly earnings aren’t as important to the company as they may be to other organizations.

However, Berkshire’s stock transactions are eagerly followed by investors who want to understand Buffett’s current perspective on the market. In Q3, Berkshire bought $1.5 billion in stocks and sold $36 billion, which appears to be a definitive statement on his current market views.

A sizable portion of those stock sales came from the company’s stake in Apple (NASDAQ: AAPL). Buffett has been a fan of the iPhone maker since he bought the stock at a discount in 2012. AAPL once made up 40% of Berkshire’s portfolio, but the firm began selling the stock last year.

Berkshire continued that trend in Q3, selling 100 million of its 400 million Apple shares. In a little over a year, Berkshire has sold over two-thirds of its Apple stake. However, the company’s $69.9 billion in Apple shares are still Berkshire’s largest holding.

What Stocks Are In Berkshire Hathaway’s Portfolio?

While Apple has had it share of struggles this year, Buffett has also continued to sell what was once his second-largest holding, Bank of America (NYSE: BAC). BAC is now the third-largest holding in Berkshire’s portfolio, following credit card giant American Express.

After BAC is Coca-Cola, which has been a long-time Buffett favorite. The soda maker makes up 9% of Berkshire’s $280 billion portfolio. After Coke, the firm’s fifth-largest holding is oil and gas company Chevron, though Buffett also sold 4.4 million Chevron shares in Q3.

According to Buffett, one of the main reasons he has been a net seller in recent quarters is there isn’t an intriguing opportunity on the table. However, one of the few stocks that Berkshire has been buying is Occidental Petroleum. The firm bought 7.26 million in the oil and gas company in Q3, and Occidental is now Berkshire’s sixth-largest holding.

Why is the Cash Reserves Ratio at Berkshire Hathaway?

Berkshire Hathaway’s $325 billion cash reserves now translate to a 32% ratio relative to the firm’s $1.00 trillion market capitalization.

Buffett might have sold Apple, Bank of America, and Chevron simply because he believes those stocks have become overvalued. Apple trades at a price-to-earnings multiple of 36x but is not growing that fast, for example.

Some observes are of the opinion that he is keeping the proceeds of those sales in cash and T-bills because his view is the market as a whole is frothy now.

It’s also worth noting that Buffett made these moves ahead of the U.S. election. The billionaire could have been staying on the sidelines until the election was resolved, especially since there have been concerns that the government would raise capital-gains taxes. 

Buffett might just be waiting for the right opportunity to swoop in on a bargain stock. Another benefit to the cash stockpile is it gives Berkshire the ability to repurchase its own shares should they decline. After aggressively buying back BRK.A for years, Buffett did not repurchase any shares in Q3.

Are Berkshire Hathaway’s Latest Moves Startling?

Buffett did buy short-term treasury bills, a move that netted him $53 billion in the third quarter. This is one of the most powerful aspects of Berkshire Hathaway and doesn’t need the stock market to make substantial income from its cash accumulation. The company could continue to make billions from low-risk, short-term investments.

That stability, and flexibility, is what makes Berkshire Hathaway an enticing investment. Berkshire might make a bold move next quarter, or it might not. However, with Buffett at the helm, investors can trust that whatever moves he makes will have Berkshire headed in the right direction long-term.

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