Election Jitters: Warren Buffett’s Cautious Stance Sends a Strong Signal
As the US presidential election approaches, investors are grappling with how to position their portfolios. Warren Buffett, the sage of Omaha, has provided a valuable insight into his thought process through Berkshire Hathaway’s third-quarter earnings.
A Record Cash Pile and a Shift in Strategy
Buffett’s conglomerate has amassed a staggering $325 billion in cash, Treasury bills, and other liquid investments, a significant increase from the $110 billion it held two years ago. This cautious approach is a departure from his usual buying spree, indicating that he’s wary of the current market valuations.
Selling Stocks and Hoarding Cash
Between July and September, Berkshire sold a substantial $36 billion in shares, while only making purchases worth $1.5 billion. This marks the eighth consecutive quarter where the company has been a net seller, offloading a net $127 billion of stocks in the first nine months of 2024. In contrast, Berkshire bought a net $34 billion of stock in 2022.
Apple and Bank of America: Reduced Exposure
Notably, Berkshire has reduced its exposure to its two largest stock positions, Apple and Bank of America. The company’s stake in Apple was slashed by 60% between January and September, reducing its value from approximately $174 billion to $70 billion. Similarly, Berkshire cut its holding in Bank of America by about 23%, reducing its worth to below $32 billion.
Buybacks on Hold
Buffett has long maintained that buybacks only make financial sense when a stock is trading at a discount to its intrinsic value. After repurchasing $20 billion of Berkshire shares between 2022 and June 2024, the company didn’t buy back a single share last quarter. This suggests that Buffett no longer sees his company’s stock as a bargain, following its more than 20% gain this year to record highs.
A Risk-Off Mentality
Russ Mould, AJ Bell’s investment director, interprets Berkshire’s steady stock disposals, cuts to Apple and Bank of America, and use of the sale proceeds to buy Treasury bills as a sign of Buffett’s serious concerns about the economic backdrop and the current state of the stock market. “It implies a risk-off mentality and the hallmarks of an investor who is prepared to sit and wait for a better entry point,” Mould noted.
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