In Berkshire Hathaway‘S (NYSE: BRK.A)(NYSE: BRK.B) In the third quarter earnings report, there were no major surprises about the company’s operations itself. Insurance profits fell significantly, but given the particularly bad hurricane season, this was not too alarming.
On the other hand, there were some big surprises that were revealed. First, CEO Warren Buffett continued to phase out the huge amounts Apple (NASDAQ: AAPL) investments and is still a general seller of stocks. Since July, Berkshire has collected more than $10 billion of that Bank of America (NYSE: BAC) stake, which was the company’s second largest investment before the sale.
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Second, and perhaps more importantly, this was the first quarter in years in which Berkshire did not buy back any shares at all. Buyback activity certainly slowed in the second quarter, but not buying back shares at all is a big change.
The combination of these things allowed Berkshire’s cash stockpile to swell to $325 billion, by far the highest it has ever reached. Is Buffett warning investors that the stock market isn’t the place to be right now? Here’s what we know and what we don’t know.
To be clear, Warren Buffett does not typically comment on the company’s stock sales or buyback volume except in his annual letter or at Berkshire’s annual meeting. So we don’t know exactly why Buffett and his team took these steps.
At least some of the selling and cash hoarding could absolutely be due to the fact that Buffett thinks the market is a bit frothy. After all, the S&P 500 is up more than 20% in 2024, and that’s after a strong 2023.
We do know that he attributed the first wave of Apple sales to tax concerns, specifically that he expects capital gains taxes could be significantly higher in the future. By selling now, he locks in the current rates.
It’s also worth noting that Buffett may authorize buybacks when he believes the stock is trading for significantly less than its intrinsic value, as determined by a conservative analysis. So the lack of buybacks doesn’t necessarily mean the shares are overvalued.
Buffett could also be cautious due to temporary market uncertainty. Given the combination of the US election, inflation, the likelihood of a near-term recession and expected Federal Reserve rate cuts, Buffett could be happier with a lot of money on the sidelines. After all, many observers, including myself, thought Buffett would go on a buying spree during the first COVID-19 crash, but the sheer uncertainty of the situation kept him on the sidelines.
