HomeBusinessIt's not Apple, Chubb or Occidental Petroleum)

It’s not Apple, Chubb or Occidental Petroleum)

In recent weeks, companies have reported their earnings for the first quarter of 2024 S&P500 And Nasdaq Composite recording record highs, investors were eager to assess the progress of the market’s hottest themes. Artificial intelligence (AI), new breakthrough drugs in the pharmaceutical industry and a red-hot energy sector are all driving buying activity in the market.

It’s easy to get lost among the euphoria and hoopla driving the market right now. However, I would encourage investors to take a step back and look at what others on Wall Street are doing.

Warren Buffett’s portfolio is often a good starting point. Since 1965, Buffett’s Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) has returned 4,384,748%. At the end of the first quarter, Berkshire had $189 billion in cash and equivalents on its balance sheet. With so much capital at his disposal and ripe stock market conditions, where could Buffett look for value?

As usual, the Oracle of Omaha left some clues in his latest shareholder letter. Let’s take a look at where Buffett is aggressively investing his money and assess why it could be a good strategy for you too.

Buffett made some big moves during the first quarter

Buffett is a rare breed. His long-term success, coupled with his seemingly simple strategy, has earned admiration from investors around the world. When Buffett buys or sells a stock, his moves have the power to significantly shake the market.

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During the first quarter, Buffett made some notable changes to his portfolio. To begin with, he reduced his importance Apple by almost 13%. While Apple remains the largest position in Berkshire by a significant margin, there was initial sales shock.

In addition to Apple, Buffett also sold shares Sirius XM, Decisive, Louisiana PacificAnd Chevron. Buffett added only one existing position: Western petroleum. Moreover, he finally unveiled a new position at an insurance company Chubb.

Warren Buffett smiles.

Image source: The Motley Fool.

All things considered, I’d say most of Buffett’s moves during the first quarter were pretty mundane. But the money pile is interesting.

There is one investment in particular that Buffett seems to favor

At the end of the first quarter, Berkshire had $35.5 billion in cash on its balance sheet. Moreover, the company also had $153 billion in short-term investments.

What exactly does this mean?

BRK.B Chart of short-term investments (quarterly).BRK.B Chart of short-term investments (quarterly).

BRK.B Chart of short-term investments (quarterly).

In short, Buffett has been buying up government bonds. Considering how strong the stock market has been across several sectors, this move may seem confusing. However, in Berkshire’s first quarter report, management stated, “We continue to believe that maintaining adequate liquidity is of paramount importance and we urge safety over returns when it comes to short-term investments.”

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Remember, Buffett is a contrarian investor. Sure, markets are showing some real strength at the moment, but inflation has remained stubbornly high, adding another layer of complexity when assessing the state of the economy. Although there are several growth opportunities available right now, Buffett is not known to follow the wind at his back or chase high valuations.

As always, Buffett is playing the long game, and his decision to buy government bonds is a classic hallmark of his overall strategy.

Rate chart for 3-month government bondsRate chart for 3-month government bonds

Rate chart for 3-month government bonds

Considering that the current three-month Treasury yield of 5.3% is the highest in almost two decades, combined with the support of the US government, putting cash into these bonds seems like genius.

With the macroeconomy so unpredictable, I think Buffett’s choice to roll over government bonds every 90 days is wise. While there are plenty of opportunities to uncover lucrative growth, many stocks and sectors still remain highly volatile at the moment. Furthermore, I don’t see market volatility subsiding anytime soon. For these reasons, I wouldn’t be surprised if Buffett continues doubling down on government bonds for the time being.

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If you’re an investor looking for a stable, reliable way to strengthen your cash, following Buffett’s lead in the Treasury market may be right for you.

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Adam Spatacco has positions at Apple. The Motley Fool holds positions in and recommends Apple, Berkshire Hathaway, and Chevron. The Motley Fool recommends Occidental Petroleum. The Motley Fool has a disclosure policy.

This Buffett investment is brilliant. (Hint: It’s not Apple, Chubb or Occidental Petroleum) was originally published by The Motley Fool

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