FRI, NOV 08, 2024

WARREN BUFFETT WATCH

Why Buffett's move to cash isn't a bad bet on the election

It was the Saturday before election day that we learned Berkshire Hathaway's $325 billion cash pile had grown to be bigger than the roughly $294 billion market value of its equity portfolio, as it sold 100 million shares of Apple during the third quarter.

As a result of that timing, it's not surprising some "Buffett watchers" concluded he was "betting on a Kamala Harris victory, which would have reversed the Trump Trade ... [that] found buoyancy on the possibility of a Trump victory and his promises of lower taxes, including on capital gains."

If that indeed was Buffett's bet, he "lost spectacularly," as a New York Post headline put it, missing out on the big stock rally in the days after Donald Trump's victory this week.

Buffett, however, tends to look at investing over a longer time horizon and the continued sales that have cut Berkshire's Apple position by two-thirds began a year ago.

Berkshire's move toward cash has been underway even longer, with the ratio of equities to cash falling from 3.68 at the end of 2022's first quarter to 0.84 as of September 30 this year.

There are other more likely explanations for what appears to be a long-term shift in Berkshire's strategy.

One interesting suggestion is that Buffett is "cleaning up" as he prepares to hand over Berkshire to Greg Abel, his designated successor.

Citing the big cuts in Berkshire's Apple and Bank of America positions, and its purchase of the 8% Berkshire Hathaway Energy stake held by former Berkshire board member Walter Scott's estate, Edward Jones analyst Jim Shanahan tells Barron's he believes Buffett "may be preparing the company for a leadership transition."

"If the transition happened today, Greg Abel ... would inherit a more balanced stock portfolio and a mountain of cash to begin the next phase of the company's history."

And with Abel, who is not known for his stock picking abilities, in charge, that "next phase" will presumably continue, and even accelerate, Berkshire's long-time transformation from an equity portfolio fueled by insurance float to a diversified collection of profitable operating companies.

BUFFETT AROUND THE INTERNET

Some links may require a subscription

CNBC Pro (subscription): 3 [possible] reasons why Warren Buffett is shunning stocks — including his own

The Times (London): Warren Buffett is building up a big cash buffer. Should you?

Barron's (subscription): Berkshire Hathway Earnings Weren’t as Bad as They Looked

Financial Times (subscription): Warren Buffett’s Apple share sales and cash pile spark intrigue over motives

Bloomberg Television: Buffett Cutting Apple Stake Makes Sense, CFRA's Seifert Says

CNN: Even Warren Buffett thinks his stock is too expensive

HIGHLIGHTS FROM THE ARCHIVE

'We’ve got the secret sauce' (2017)

On the eve of President Donald Trump’s [first] inauguration, Warren Buffett says the U.S. economy and stock market will do fine regardless of who is in the White House.

BERKSHIRE STOCK WATCH

Four weeks

Twelve months

BERKSHIRE'S TOP U.S. STOCK HOLDINGS - Nov. 8, 2024

Berkshire's top holdings of disclosed publicly traded stocks in the U.S., Japan, and Hong Kong, by market value, based on today's closing prices.

Holdings are as of June 30, 2024 as reported in Berkshire Hathaway's 13F filing on August 14, 2024, except for:

Apple, which is an estimate as of September 30, 2024 based on the value of the stake listed in Berkshire’s third quarter 10-Q
Bank of America, which is as of October 15, 2024
Mitsubishi, which is as of June 12, 2023. Tokyo Stock Exchange prices are converted to U.S. dollars from Japanese yen.

The full list of holdings and current market values is available from CNBC.com's Berkshire Hathaway Portfolio Tracker.

QUESTIONS OR COMMENTS

Please send any questions or comments about the newsletter to me at alex.crippen@nbcuni.com. (Sorry, but we don't forward questions or comments to Buffett himself.)

If you aren't already subscribed to this newsletter, you can sign up here.

Also, Buffett's annual letters to shareholders are highly-recommended reading. There are collected here on Berkshire's website.

-- Alex Crippen, Editor, Warren Buffett Watch

900 Sylvan Avenue, Englewood Cliffs, NJ 07632

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