Berkshire Hathaway’s Cash Reserves Soar to Record High
Warren Buffett’s conglomerate holding company, Berkshire Hathaway, has reached an unprecedented milestone, boasting a staggering $325.2 billion in cash reserves. This significant achievement is largely attributed to the company’s strategic exit from one of its most profitable trades in recent years.
A Shift in Investment Strategy
Berkshire Hathaway began selling its shares of Apple in late 2022, gradually reducing its stake in the tech giant. By the end of the second quarter, the company had halved its Apple holdings, bringing its cash reserves to a then-record high of $277 billion. The selling pace accelerated in the third quarter, with Berkshire offloading an additional 100 million shares, reducing its total stake to 300 million shares.
A New Era of Caution
This drastic reduction in Apple holdings is part of a broader trend, as Berkshire Hathaway has been paring down its equity holdings across the board over the past two years. In the third quarter, the company purchased a mere $1.5 billion worth of stocks, marking its eighth consecutive quarter as a net seller of equities.
Cash Reserves Outweigh Equities
Berkshire Hathaway’s $325.2 billion in cash and short-term treasuries now surpasses the market value of its equities, which stands at $271.6 billion as of the end of the third quarter. This shift in asset allocation has raised eyebrows, but the company’s shares have performed remarkably well, rising 52% over the past three years, outpacing the S&P 500’s 22% increase during the same period.
Tax Rate Predictions Drive Decision
Warren Buffett’s prediction of an impending increase in the capital-gains tax rate is a significant factor behind Berkshire Hathaway’s massive equity sale. The Oracle of Omaha believes that higher taxes are likely to help address the federal deficit, which currently stands at around 122% of the country’s GDP.
A Prudent Approach
While some have questioned Berkshire’s stock sales, Buffett remains unfazed, citing the attractiveness of holding cash in the current market environment. “I think when I look at the alternative of what’s available in the equity markets and I look at the composition of what’s going on in the world, we find it quite attractive,” he said during the company’s annual shareholder meeting in May.
A Commitment to Fiscal Responsibility
Despite predictions of rising tax rates, Buffett emphasized that Berkshire Hathaway welcomes paying substantial federal income taxes, deeming it appropriate. As the company navigates this new era of caution, its commitment to fiscal responsibility remains unwavering.
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