Introduction
Record-High Cash Holdings
The chart below shows Berkshire Hathaway's cash reserves (cash + U.S. short-term Treasury bonds) over approximately the past 15 years, from 2010 to the present. In the third quarter alone, cash holdings increased by about $48 billion, reaching a record high of $325.2 billion. This is a 94% increase, nearly doubling from $168 billion at the start of the year in just nine months.
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| Source: https://www.zerohedge.com |
How about Berkshire's cash holdings as a percentage of its total assets? The following chart shows changes in Berkshire Hathaway's cash allocation over the past 35 years, from 1990 to the present. As of the end of the third quarter of 2024, the cash allocation stands at 28.3%, a record high.
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| Source: https://www.forbes.com |
Periods when cash allocation was high in the past are marked with yellow circles. The first circle roughly corresponds to mid-1998. The U.S. tech stock crash began suddenly in early 2000. While Buffett didn’t invest in tech stocks, the prices of non-tech stocks also declined — though not as significantly—making his earlier portfolio adjustments a wise decision, albeit about 1.5 years ahead of time.
Why Buffett is Increasing Cash Holdings?
The chart below shows the changes in the Buffett Indicator for the U.S. from 1950 to the end of August 2024. The dotted gray line in the middle illustrates an upward-sloping trendline. Currently, the Buffett Indicator stands at 209%, not only marking an all-time high but also showing a near-record 68% deviation above the trendline.
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| Source: https://www.currentmarketvaluation.com |
In short, Warren Buffett seems to consider the U.S. stock market currently overvalued, which may explain his reduction in stock holdings. He may even believe that the shares of his own company, Berkshire Hathaway, are overvalued.
The chart below displays Berkshire’s share buyback amounts. Although buybacks were made quarterly from 2018 to 2023, they were significantly reduced starting in the first quarter of this year. By the third quarter, Berkshire completely halted buybacks for the first time in seven years. Companies might halt buybacks if they experience substantial losses or cash outflows, but in the third quarter, Berkshire reported a net profit of $26.5 billion. With strong net income and record-high cash reserves, it’s clear that the decision to stop buybacks wasn’t due to a lack of funds — Buffett simply believes Berkshire's stock is too expensive.
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| Source: https://www.forbes.com |
Which Stocks Has Berkshire Sold in Q3?
Berkshire's announcement last weekend was its 10-Q quarterly earnings report. The 13F report, which institutional investors managing over $100 million in assets must file, has not been released yet, so specific details are not yet available. However, the 10-Q report includes notes on the top 5 investments, giving us some early insights.
The main focus is on Apple, as it is the world’s largest stock by market cap and also Berkshire’s largest holding. The chart below shows the changes in Berkshire Hathaway's Apple holdings from the end of 2015 to the present. It’s clear that Berkshire has been selling Apple shares significantly every quarter since the beginning of this year. Berkshire's Apple holdings, which stood at 905 million shares at the end of last year, dropped to 300 million shares by the end of the third quarter of 2024, or less than one-third of the previous amount.
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| Source: https://www.zerohedge.com |
Berkshire has also been gradually selling its shares in Bank of America. Since Berkshire's stake exceeds 10%, any sale triggers a SEC reporting requirement, and this has already been widely covered in the news. Among Berkshire's top 5 stock holdings, the other three — American Express, Coca-Cola, and Chevron — showed little change in the third quarter. Buffett’s longstanding affection for Coca-Cola and Amex is well-known, and his investments in Chevron and Occidental suggest he has a positive outlook on the oil sector.
Closing Remarks
However, this isn't always the case. While he has never sold shares in companies like Coca-Cola and American Express, Buffett has adjusted or sold many other holdings. In the past, he has bought and sold various stocks, and just this year, he has been steadily reducing his stakes in Apple and Bank of America.
Some suggest this might be due to the heavy weighting of Apple in the Berkshire stock portfolio or a proactive measure against anticipated tax hikes, but it could simply reflect Buffett’s belief that the market is currently overvalued. Historically, Berkshire Hathaway has adjusted its stock allocation based on market conditions.
That said, individual investors need not be overly alarmed. Large investment firms like Berkshire must adjust their stock allocation over months or even quarters to avoid causing substantial stock price drops. In contrast, individual investors— even those with substantial portfolios — can sell a large-cap stock like Apple in a single day if necessary. Choosing to sell gradually over time to raise the average selling price in a rising market is merely an option.
Moreover, past trends show that Berkshire's substantial cash buildup often came 1-2 years before the actual market peak. Nevertheless, Buffett’s current stance suggests he sees the U.S. market as overvalued, and this is a clear message worth noting. Investors would do well to stay mindful of risk management as they approach their investments.
Thanks for reading. I wish you grow rich slowly and surely!
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