As the financial markets continue to hit new highs, legendary investor Warren Buffett is strategically increasing Berkshire Hathaway’s cash reserves at an extraordinary pace. By the end of September, the company’s cash holdings had soared to a staggering $325.2 billion, up from $276.9 billion in the previous quarter. This significant cash accumulation was detailed in the earnings report released on Saturday morning. Notably, Berkshire Hathaway has recently announced a halt on share buybacks, choosing instead to maintain a robust cash position.
An Unprecedented Cash Reserve Surge!
Over the past two years, Buffett’s cash reserves have witnessed an unparalleled increase. Remarkably, the current cash balance exceeds the market capitalization of all but 27 publicly traded companies worldwide. This impressive cash pile now surpasses the market cap of giants like Netflix and Bank of America.
A considerable factor contributing to this cash surge has been Berkshire’s strategic sale of Apple stock. In the third quarter of 2024 alone, Berkshire divested $14.3 billion worth of Apple shares, reducing its position to $69.9 billion. Over the last two quarters, Warren Buffett has sold a significant $100 billion of Apple stock. This strategic move comes at a time when the stock market is experiencing an unprecedented rally, with the S&P 500 up by over 40% in the past year.
Strategic Decision: No Buybacks
During this period of selling, Berkshire Hathaway did not repurchase any of its own shares. This decision aligns with the company’s cautious approach, as repurchase activity had already decelerated earlier in the year while Berkshire’s stock outperformed the broader market, reaching record highs.
Notably, Berkshire Hathaway refrained from buying back stock in the third quarter of 2024, a stark contrast to the $345 million in buybacks during the second quarter of 2023 and $2 billion in each of the preceding two quarters. The company maintains that it will only repurchase stock when Buffett believes the price is below its intrinsic value. Class A shares of Berkshire have surged 25% this year, surpassing the S&P 500’s year-to-date return of 20.1%, and the conglomerate reached a remarkable $1 trillion market cap milestone in the third quarter.
Is Buffett De-risking the Balance Sheet?
It appears that Warren Buffett is strategically de-risking Berkshire Hathaway’s balance sheet. In addition to selling holdings, he has increased the company’s investment in Treasury Bills to $288 billion. This move could reflect Buffett’s cautious stance amid what he perceives as elevated levels of market greed. His famous quote, “Be fearful when others are greedy, and be greedy when others are fearful,” may be guiding his current strategy.
The last time Buffett reduced his Apple holdings, the stock fell nearly 6%. This suggests potential downward pressure on Apple stock, which could impact the broader market.
Rising Institutional Adoption of Bitcoin
In the second quarter of 2024, institutional interest in Bitcoin exchange-traded funds (ETFs) grew by 14%, reaching a total of 1,100 institutional investors. This rate of adoption is unprecedented for any ETF in history. Despite Buffett’s persistent criticism of Bitcoin, claiming it has no intrinsic value, the cryptocurrency astounded the financial world last year by surpassing Berkshire Hathaway’s market capitalization.
Will Buffett Shift His Stance on Bitcoin?
MicroStrategy CEO Michael Saylor recently suggested that Warren Buffett should consider emulating MicroStrategy’s approach. Since August 2020, MicroStrategy has been steadily acquiring Bitcoin, becoming the largest corporate holder of the cryptocurrency. Despite Buffett’s critical view of cryptocurrencies, Berkshire Hathaway has benefited significantly from its investment in Nu Holdings. The company initially invested $500 million in a Series G funding round, followed by an additional $250 million, resulting in substantial returns.
Nu Holdings has delivered impressive performance, with a 100% market surge in 2023 and an additional 50% rise in early 2024. This success presents a challenge for Buffett, as Nu Holdings’ remarkable performance, up nearly 125% this year, stands in stark contrast to his negative stance on Bitcoin. Meanwhile, Bitcoin itself is experiencing a remarkable year, significantly outperforming major indices like the S&P 500.
What lies ahead? Will Warren Buffett eventually follow in the footsteps of institutions turning to Bitcoin due to its exceptional performance and growing appeal? Stay tuned for more updates on Buffett’s strategic decisions.
