Warren Buffett’s Berkshire Hathaway has sold $166 billion in stocks over eight consecutive quarters, significantly reducing holdings in Apple and Bank of America. With limited appealing investments in the U.S. market, Buffett has reinvested proceeds into short-term Treasury bills, raising Berkshire’s cash reserves to a record $325.2 billion.
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By Eric Platt
Berkshire’s stock-selling spree extends for eighth quarter, with $166bn dumped over the period ___STEADY_PAYWALL___
Warren Buffett continued to slash his stake in Apple as part of a selling spree that has seen his Berkshire Hathaway dump $166bn worth of stocks over the past two years, with the Oracle of Omaha finding few other opportunities to chase in the US stock market.
The sprawling industrial and investment conglomerate disclosed on Saturday that it had reduced its position in Apple to $69.9bn in the third quarter, indicating it had shed a further 100mn shares in the three-month period.
In just over a year, Buffett has ditched almost two-thirds of his stake in the technology company, which at its peak in 2023 accounted for $178bn of the company’s stock portfolio.
The stock sales are a dramatic shift by Buffett, given in 2022 he described Apple as one of Berkshire’s “four giants”, accounting for the bulk of the company’s value. At the company’s shareholder meeting in May he described the iPhone maker as “an even better business” than Coca-Cola and American Express, two of Berkshire’s longtime holdings.
“Unless something dramatically happens that really changes capital allocation strategy, we will have Apple as our largest investment,” Buffett told shareholders at the time.
“But I don’t mind at all, under current conditions, building the cash position,” he added. “I think when I look at the alternative of what’s available in the equity markets and I look at the composition of what’s going on in the world, we find it quite attractive.”
Buffett said that he believed there was a high likelihood the US federal government would raise tax rates in the coming years given the country’s sustained budget deficits, which would reduce Berkshire’s profits on future stock sales.
Berkshire reported on Saturday that it had generated gains of $97bn on the $133bn of stock it has sold this year, which after taxes amounted to a $76.5bn pay-off for the group.
“It’s still the greatest trade of all time by the greatest investor of all time,” said Christopher Rossbach, chief investment officer of longtime Berkshire shareholder J Stern & Co.
“The investment in Apple has defined his last decade and the fact that he is selling Apple now for valuation reasons is testament to his sticking to his principles at a scale that no one has before.”
The billionaire investor has been selling more than just Apple. Over the course of the three months to September, Berkshire sold $36.1bn of stocks, including part of its large position in Bank of America. In October, he reduced his stake in Bank of America below 10 per cent after selling more than $10.5bn worth of the US lender’s stock, an investment that dated back to the global financial crisis.
He has found little else to entice him in the US stock market, buying equities worth just $1.5bn. The 94-year-old has been jettisoning stocks at a remarkable clip, with Berkshire being a net seller of equities for eight consecutive quarters.
Even Berkshire shares were off-limits to the noted value investor, who controls the company’s stock buyback programme. Berkshire did not repurchase any of its shares in the third quarter.
Buffett in turn ploughed the proceeds from those sales back into short-term Treasury bills, pushing the company’s cash position to a record $325.2bn.
The sales raise questions over Buffett’s motivations and his investment outlook, with the investor stockpiling an enormous level of cash unseen in the investment world.
He has been content to earn the relatively high yields on short-term US Treasury bills, even as the Federal Reserve has started to cut interest rates. The company earned nearly $10bn in interest on its cash and Treasury position over the past 12 months, including $3.5bn in the third quarter.
He has built up the company’s cash position before, saying the mountain of liquidity gives Berkshire an ability to pounce in a crisis. However, the company has faced far better capitalised competitors in the years since the financial crisis. Heavyweights in the investment world, including Apollo and Blackstone, are often stepping in to finance companies looking to shore up their balance sheets.
It will set up a challenge for Buffett’s heir apparent, Greg Abel. The 62-year-old energy executive has been charged with leading Berkshire when Buffett eventually steps down, including having oversight over its $271.7bn stock portfolio.
The stock sales were disclosed as part of Berkshire’s quarterly earnings, which showed a decline in operating profits. The company’s insurance businesses have been buffeted by two hurricanes that pounded the south-east US.
Berkshire said Hurricane Helene resulted in losses of $565mn in the third quarter, and that it anticipated losses of between $1.3bn and $1.5bn in the fourth quarter from Hurricane Milton, which struck Florida days later.
The insurance business has also agreed to pay $535mn to resolve asbestos-related talcum powder liabilities, pushing its reinsurance unit to a loss for the quarter.
Overall, operating profits fell 6 per cent from a year earlier to $10.1bn. Buffett has long directed investors to its operating results, which do not include the swings in value of its mammoth stock portfolio. He has warned that reported net income is meaningless given the volatility of the stock market. In the quarter, net income swung to $26.3bn from a loss of $12.8bn a year before.
Class A shares of Berkshire have rallied 25 per cent this year, outpacing the total return of the S&P 500.
© 2024 The Financial Times Ltd.
Berkshire Hathaway’s Cash Pile Reaches Record $325.2 Billion
By Alexandre Rajbhandari
Berkshire Hathaway Inc.’s cash pile reached $325.2 billion in the third quarter, a record for the conglomerate, as Warren Buffett continued to refrain from major acquisitions while trimming some of his most significant equity stakes.
Berkshire once again cut its holdings in Apple Inc., the Omaha, Nebraska-based company said Saturday in a statement. Its stake in the iPhone maker was valued at $69.9 billion at the end of the quarter, down from $84.2 billion in the second quarter, indicating that Berkshire cut its stake by about 25%.
Berkshire first disclosed its Apple stake in 2016 and had spent $31.1 billion for the 908 million Apple shares it held through the end of 2021.
Buffett said in May that Apple would likely remain Berkshire’s top holding, indicating that tax issues had motivated the sale. “I don’t mind at all, under current conditions, building the cash position,” he said at the annual shareholder meeting.
“I don’t think Warren Buffett’s ever really been super comfortable with technology,” said Jim Shanahan, an analyst at Edward Jones.
Read More: Berkshire Cuts Apple Stake by Almost Half in Selling Spree
Cathy Seifert, a research analyst at CFRA, said Berkshire’s Apple stake was “starting to become an outsized percentage” of its overall portfolio. “I think it made sense to sort of lighten that exposure a little bit,” she said.
Net Seller
Berkshire reported $34.6 billion of net share sales in the three months through September.
The company has struggled to find ways to deploy its cash pile, as Buffett has found market prices too high to find attractive deals. At the annual meeting, Buffett said Berkshire wasn’t in a rush to spend “unless we think we’re doing something that has very little risk and can make us a lot of money.”
Higher yields on cash holdings set “the bar a little bit higher for other opportunities,” Shanahan said.
Interest and other investment income has more than doubled at the conglomerate’s insurance business, reaching $3.5 billion in the three months through September.
Buffett, 94, has used some of the cash hoard to repurchase some of its own stock, though even that had become costlier recently. Shares of Berkshire have gained 25% this year, boosting its market value to $974.3 billion. Its market capitalization eclipsed $1 trillion for the first time on Aug. 28.
This past quarter, Berkshire declined to buy back its own stock for the first time since it changed its policy in 2018.
“I think investors are going to be disappointed by that,” Seifert said.
Operating Earnings
Berkshire’s operating earnings fell 6% from a year earlier, to $10.09 billion, as insurance underwriting earnings slumped. The company also recorded a $1.1 billion foreign-currency-exchange loss during the quarter.
Earnings from underwriting at the firm’s collection of insurance businesses plunged 69%, to $750 million, versus $2.4 billion a year earlier, driven by higher losses at Berkshire Hathaway Primary Group.
Berkshire estimated that the impact of hurricane Helene on its earnings this quarter came to $565 million. Hurricane Milton is expected to result in a pretax hit of $1.3 billion to $1.5 billion in the fourth quarter.
While earned premiums grew at car insurer GEICO, they declined about 5.6% across Berkshire’s reinsurance businesses. Seifert said this could signal that Berkshire is embracing a “risk-off” strategy this quarter.
Read also:
- The Economist: Why Warren Buffett has built a mighty cash pile
- Warren Buffett’s masterstroke: Timing the Apple bite to perfection – Sean Peche
- Kokkie Kooyman’s ultimate insider’s guide to Warren Buffett and Berkshire
© 2024 Bloomberg L.P.
