Why Warren Buffett Is Raising So Much Cash?

Warren Buffett’s Berkshire Hathaway is selling more shares in Apple and other companies and trimming Berkshire’s stock buybacks — ending September with $352.2 billion in cash, according to CNBC.

This raises many questions:

• Why is Berkshire raising so much cash?

• As stocks hit new record highs — with the S&P 500 up 20% so far in 2024 — should investors head for the hills or keep buying?

 

Source: https://www.investopedia.com

Buffett says he is selling because he thinks stocks are trading above their intrinsic value and capital gains taxes are likely to rise. Berkshire Hathaway is piling up cash. More specifically, between the second and third quarters of 2024, the company’s cash pile increased 17.4% to $325.2 billion.

Overall, Berkshire sold $36.1 billion worth of stock in the quarter. Much of the proceeds came from unloading shares of its two biggest holdings: Apple and Bank of America. More specifically, Berkshire sold roughly 25% of its Apple holdings in the third quarter — marking the fourth quarter in a row Buffett has dumped the iPhone maker’s stock.

Since the end of 2023, Berkshire has sold 605 million Apple shares — or about 70% of its holdings. The company unloaded 115 million in the first quarter and 390 million in the second quarter.

In the third quarter, Buffett’s company dumped another 100 million Apple shares, according to the Wall Street Journal, leaving Berkshire with about $70 billion worth of the iPhone maker’s stock. Since the end of September, Apple stock has lost 4.3% of its value.

Berkshire has also sold about $10 billion worth of Bank of America stock since the middle of July. For the first time since 2018, Buffett’s company didn’t buy back any stock in the quarter.

Buffett has stated two reasons for raising so much cash: Stocks are overpriced, and capital gains taxes must rise. The idea that Buffett sees stocks in general as over-valued has been around for many months. In May, he told investors to expect him to sell shares and build up reserves. Another reported reason why he is selling stocks is he anticipates higher capital gains taxes. 

If Buffett’s cash-raising strategies signal a stock market drop is imminent, investors who follow that index investing strategy will be able to buy stocks at lower prices every month until they bottom out. So, do we cash out now or hold on?

Reference:

Why Warren Buffett sold more Apple stock and is raising so much cash? Peter Cohan, Forbes, 4 November 2024