Warren Buffett’s enthusiasm for the stock market seems to have cooled off as the cash reserves of Berkshire Hathaway, the company he leads, surged to nearly $277 billion. This comes as the conglomerate reported record profits in its quarterly operations and significantly reduced its holdings in Apple Inc.
In the second quarter, Berkshire sold approximately 390 million shares of Apple, on top of 115 million shares sold in the previous quarter when Apple’s stock price had risen by 23%. As of June 30, Berkshire still held around 400 million shares of Apple stock, valued at $84.2 billion.
The cash holdings of Berkshire have increased from $189 billion three months ago to $276.9 billion, mainly due to the company’s net selling of $75.5 billion in stocks. This marks the seventh consecutive quarter where Berkshire sold more stocks than it purchased.
In the second quarter, the profits of Berkshire’s dozens of subsidiary companies grew by 15% from the same period last year, reaching $11.6 billion, or approximately $8,073 per Class A share. Nearly half of this profit came from Berkshire’s insurance underwriting and investments.
The quarterly net profit decreased from $35.91 billion to $30.34 billion, a 15% decline, attributed to the stock market’s rise during these periods, boosting the value of Berkshire’s stock investment portfolio including Apple.
As a renowned investor, Buffett has long urged shareholders to overlook Berkshire’s quarterly investment gains or losses, as these figures can often mislead investors unfamiliar with accounting rules into believing the profit or loss is significantly large.
Buffett remains a loyal fan of Apple. During the shareholder meeting in May, he mentioned that he expects Apple to still be Berkshire’s largest stock investment, but selling was deemed reasonable due to the potential increase in the 21% federal tax rate.
An analysis by The Wall Street Journal suggests that the stock sales and cash increase indicate Buffett’s challenge in finding quality investments with sufficiently low prices that promise substantial returns. Buffett discussed the difficulty of deploying cash at Berkshire’s May meeting.
“We are eager to spend money, but we will not act recklessly unless we believe what we are doing is low-risk and will make a lot of money,” he stated.
When Berkshire cannot find suitable investment opportunities, it typically chooses to accumulate cash.
Since mid-July, Berkshire has also sold over $3.8 billion of Bank of America’s stocks, which is the second-largest stock held by Berkshire.
According to Reuters, Berkshire’s massive cash reserve may reflect concerns about the overall U.S. economy – many investors view Berkshire as a microcosm of the American economy.
Government data released on Friday, August 2nd, showed slowing job growth and the unemployment rate reaching its highest level since October 2021, prompting some analysts to predict that the Federal Reserve could start multiple interest rate cuts from September.
Once the rate cuts begin, the returns Berkshire receives from short-term government bonds are expected to decrease.
Berkshire’s cash spent on stock buybacks has also reduced, with only $345 million repurchased in the second quarter and no repurchases made during the first three weeks of July.
At 93 years old, Buffett has been leading Berkshire Hathaway since 1965, transforming it into a conglomerate owning dozens of companies including Geico auto insurance, BNSF Railway, Berkshire Hathaway Energy, a real estate brokerage named after him, and Dairy Queen.
Greg Abel, the 62-year-old Vice Chairman, is poised to eventually succeed Buffett and become the CEO of Berkshire Hathaway.