Buffett’s Berkshire Hathaway Continues Apple Sell-Off, Boosting Cash Reserves to Unprecedented Levels

Warren Buffett’s Berkshire Hathaway has intensified its sell-off of Apple shares, propelling its cash reserves to an all-time high of $325.2 billion. This strategic shift reflects Berkshire’s cautious outlook amid current economic uncertainties and is part of a broader trend seen throughout 2024. In the third quarter alone, Berkshire sold approximately 100 million Apple shares, reducing its stake by 25% and leaving it with about 300 million shares in the tech giant, still valued at a substantial $69.9 billion. Despite these sales, Apple remains Berkshire’s largest single stock investment.

Record Cash Reserves Highlight Strategic Shift

In its latest quarterly report, Berkshire revealed total stock sales of $36.1 billion, which included the sale of several billion dollars worth of Bank of America shares, another major holding. In stark contrast, Berkshire acquired only $1.5 billion in new stock investments, marking the eighth consecutive quarter in which it was a net seller. For the first time since 2018, Berkshire also refrained from repurchasing its own stock, indicating that Buffett may not currently view Berkshire’s shares as undervalued.

Analyst Cathy Seifert of CFRA Research interprets this accumulation of cash as a potential red flag: “Berkshire is a microcosm of the broader economy. Its growing cash reserves suggest a ‘risk-off’ approach, and investors may be concerned about what this cautious stance signals for the economy and markets.”

Decline in Operating Profit Affected by Insurance Losses and Currency Impacts

Berkshire reported a 6% drop in quarterly operating profit, falling to $10.09 billion and missing analyst expectations. This was largely due to setbacks in insurance underwriting, driven by Hurricane Helene, as well as losses related to the strengthening U.S. dollar.

Although Berkshire’s auto insurance arm, Geico, saw an increase in profitability thanks to fewer accident claims, other underwriting losses led to a 69% overall drop in profit from its insurance sector. Additionally, Berkshire forecasts a further $1.3 billion to $1.5 billion in pre-tax losses in the fourth quarter, due to Hurricane Milton’s impact in Florida. These challenges underscore the volatility that even Berkshire’s well-diversified portfolio faces in the insurance sector.

Apple Stock Sale Reflects Long-Term Strategic Planning

While Apple remains a cornerstone of Berkshire’s portfolio, Buffett has suggested that trimming the Apple position aligns with long-term strategy, especially due to capital gains tax implications. With the current 21% federal tax rate on gains, the partial Apple sale allows Berkshire to manage its liquidity carefully, preparing it for future investment opportunities.

Tom Russo, principal at Gardner Russo & Quinn and a longtime Berkshire investor, noted Buffett’s approach, stating, “Buffett aims to invest every dollar in businesses that give Berkshire a competitive advantage. Yet, he’s equally prepared to wait patiently, ready to act when other investors are constrained.”

Berkshire’s Diverse Portfolio and Strong Stock Performance

Despite its cautious selling strategy, Berkshire’s diverse holdings remain resilient, spanning industries like energy, transportation, manufacturing, and retail, with brands such as Dairy Queen and Fruit of the Loom. This diversification has proven valuable, with Berkshire’s Class A shares gaining 25% this year, outperforming the S&P 500’s 20% increase. As Buffett, now 94, prepares for eventual leadership succession to Vice Chairman Greg Abel, Berkshire’s long-term growth outlook remains strong, although it remains conservative in its investment strategy.

Future Outlook: Berkshire’s Preparedness for Market Volatility

Buffett has repeatedly advised investors to focus on Berkshire’s operating results rather than net income, as accounting rules require the reporting of unrealized investment gains and losses, adding volatility. This quarter, Berkshire reported $26.25 billion in net income, a dramatic shift from the $12.77 billion loss reported a year ago due to stock value declines.

With Berkshire’s substantial cash reserves and Buffett’s cautious approach, the company is well-prepared to capitalize on new investment opportunities as market conditions become favorable. This measured strategy highlights Berkshire’s long-term resilience and positions it for sustained growth.