Warren Buffett Amasses $325 Billion Cash, Berkshire Sells Shares

2 Nov at 7:42 pm

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Warren Buffett Amasses $325 Billion Cash, Berkshire Sells Shares \ Newslooks \ Washington DC \ Mary Sidiqi \ Evening Edition \ Warren Buffett’s Berkshire Hathaway has accumulated over $325 billion in cash after continued sales of Apple and Bank of America shares. Despite a steady profit stream from its diverse holdings, Berkshire did not make any significant acquisitions this quarter, leaving investors curious about the company’s conservative strategy. Quarterly earnings soared to $26.25 billion, driven by investment gains, but operating earnings declined slightly.

Berkshire Hathaway’s Cash Pile Hits $325 Billion as Buffett Sells Apple, Limits Acquisitions

Huge Cash Reserves: Berkshire Hathaway’s cash on hand reached an unprecedented $325 billion after major stock sell-offs this year, including substantial reductions in Apple holdings.
Apple and Bank of America Sales: Berkshire sold an additional 100 million Apple shares in Q3 after last quarter’s reductions, bringing its remaining Apple stake to approximately $69.9 billion.
No Buybacks: Berkshire didn’t repurchase any of its own shares this quarter, despite shareholder expectations, sparking questions about its cash deployment plans.
Buffett’s Rationale: Buffett hinted that rising future tax rates influenced the sale of Apple shares, although some speculate that the passing of Charlie Munger may have impacted Buffett’s comfort with tech investments.
Revenue and Earnings: Berkshire reported a profit of $26.25 billion this quarter, bolstered by investment gains, but operating earnings were slightly down at $10.09 billion, indicating stable performance across its holdings.

Deep Look

Warren Buffett’s Berkshire Hathaway has hit a new record, accumulating over $325 billion in cash reserves following significant reductions in holdings of Apple and Bank of America shares. The decision to hold back on major acquisitions, coupled with the steady cash influx from Berkshire’s diverse portfolio, highlights Buffett’s cautious strategy amid economic uncertainty. For a conglomerate that has historically deployed capital aggressively, especially during economic downturns, the conservative approach is prompting questions about the reasons behind Berkshire’s cash buildup.

In the third quarter, Berkshire continued to pare down its Apple investment, selling approximately 100 million more shares after slashing its stake last quarter. Despite the reduction, Apple remains Berkshire’s largest single investment, with about 300 million shares valued at $69.9 billion as of September’s end. This valuation is significantly down from last year’s end-of-year valuation of $174.3 billion, reflecting both the sell-off and fluctuations in Apple’s stock price.

Apple Sales: A Shift in Berkshire’s Investment Strategy?

The ongoing Apple sales come with mixed interpretations from analysts and investors. Part of Buffett’s motivation may stem from his prediction that tax rates will rise, prompting him to realize gains on a portion of the position. Edward Jones analyst Jim Shanahan suggested that the sales might also reflect Buffett’s longstanding caution toward tech investments—a sector with which he’s historically been less comfortable compared to his late partner, Charlie Munger. “If Charlie Munger were still alive, perhaps he wouldn’t have sold down the position quite as aggressively—maybe at all,” Shanahan observed, noting that Munger had been a strong advocate of the Apple investment.

Berkshire’s Quarterly Performance and Cash Flow

Berkshire’s decision not to repurchase any of its own shares in Q3 may come as a disappointment to investors hoping for share buybacks as a use for the cash. With no major acquisitions to announce, shareholders are left wondering if Berkshire is “more pessimistic about the future economic and market picture than perhaps others are,” as CFRA Research analyst Cathy Seifert put it.

The company did, however, post impressive profits of $26.25 billion for the third quarter, driven by gains in its investment portfolio. This is a remarkable turnaround from a year ago when Berkshire reported a loss of $12.77 billion due to unrealized investment losses. Despite the volatility in quarterly profit, Buffett has long emphasized that investors should look at Berkshire’s operating earnings, which provide a more stable view of its diverse businesses. Operating earnings for Q3 totaled $10.09 billion, a 6% drop from $10.8 billion a year ago, suggesting some stabilization in Berkshire’s core businesses despite fluctuations in other areas.

Revenue Consistency Despite Macroeconomic Challenges

Berkshire’s Q3 revenue remained stable at $92.995 billion, only a slight dip from $93.21 billion last year. The performance is in line with analyst expectations, and it reflects the broad resilience of Berkshire’s businesses, which include insurance, railroads, utilities, and retail. Berkshire’s core operations include popular American brands like Dairy Queen and See’s Candy, as well as significant assets in the energy and transportation sectors. One of its insurance subsidiaries, Guard, reported some retroactive losses as managers reviewed policies, though these adjustments didn’t significantly impact overall performance.

Resolving the Acquisition Mystery: The Scott Family Deal

Berkshire also shed light on one major transaction from the quarter: its acquisition of the remaining shares in its utility business from the estate of former Berkshire board member Walter Scott. The conglomerate paid $2.4 billion in cash, issued $600 million in debt, and provided the Scott family with Class B shares valued at over $1 billion, totaling approximately $4 billion for an 8% stake in the utilities business. The Scott family received a considerably lower price for their stake compared to Berkshire Vice Chairman Greg Abel’s 1% stake sale in 2021 for $870 million. Abel, who is next in line to succeed Buffett as CEO, retains significant interest in the company’s utilities division, reflecting Berkshire’s long-term investment in energy infrastructure.

Why Buffett Is Accumulating Cash and Avoiding Major Purchases

The accumulation of cash and cautious approach toward new acquisitions has led some analysts to wonder if Buffett is predicting a downturn. Traditionally, Berkshire has deployed capital aggressively during market disruptions, but the current high cash reserves suggest a more measured approach. With inflation concerns and potential recession signals in the market, Berkshire’s cash reserve positions the company to make strategic investments if a downturn presents new buying opportunities.

Meanwhile, Berkshire’s businesses continue to generate cash. The insurance division, which includes Geico and a range of other providers, remains a significant source of income. The conglomerate’s ownership of BNSF railroad and several utility companies also provides reliable cash flow. This steady income from diversified sectors contributes to Berkshire’s growing war chest.

Investors Seek Clarity on Buffett’s Strategy

For now, Berkshire’s cash-heavy approach suggests Buffett’s confidence in being patient rather than rushing into new deals in an uncertain market. Despite the lack of major acquisitions, investors remain hopeful that the high cash reserves could lead to transformative deals down the road. The decision not to repurchase any of its own shares, however, disappointed some shareholders who were looking for signs that Buffett would use the cash reserves to drive shareholder value in the short term.

Buffett’s prudent, conservative approach may signal an expectation of economic challenges ahead, but his track record suggests that he’s waiting for the right opportunity. By holding back on major purchases, Berkshire remains prepared to capitalize if market conditions shift, staying true to Buffett’s philosophy of waiting for “fat pitches” before committing large sums of capital.

As Berkshire moves into the next quarter, investors will be watching closely to see how the company manages its cash and navigates an uncertain market environment. With Greg Abel preparing to step into the CEO role after Buffett, Berkshire’s next chapter could bring new approaches to investment strategies, though Buffett’s guiding principles are likely to remain central to its long-term vision.