“But I don’t mind at all, under current conditions, building the cash position,” he added. “I think when I look at the alternative of what’s available in the equity markets and I look at the composition of what’s going on in the world, we find it quite attractive.”
Buffett said he believed there was a high likelihood the US federal government would raise tax rates in the coming years given the country’s sustained budget deficits, which would reduce Berkshire’s profits on future stock sales.
Berkshire reported on Saturday that it had generated gains of US$97b on the US$133b of stock it has sold this year, which after taxes amounted to a US$76.5b payoff for the group.
“It’s still the greatest trade of all time by the greatest investor of all time,” said Christopher Rossbach, chief investment officer of long-time Berkshire shareholder J Stern & Co.
“The investment in Apple has defined his last decade and the fact that he is selling Apple now for valuation reasons is testament to his sticking to his principles at a scale that no one has before.”
The billionaire investor has been selling more than just Apple. Over the course of the three months to September, Berkshire sold US$36.1b of stocks, including part of its large position in Bank of America. In October, he reduced his stake in Bank of America below 10% after selling more than US$10.5b worth of the US lender’s stock, an investment that dated back to the global financial crisis.
He has found little else to entice him in the US stock market, buying equities worth just US$1.5b. The 94-year-old has been jettisoning stocks at a remarkable clip, with Berkshire being a net seller of equities for eight consecutive quarters.
Even Berkshire shares were off-limits to the noted value investor, who controls the company’s stock buyback programme. Berkshire did not repurchase any of its shares in the third quarter.
Buffett in turn ploughed the proceeds from those sales back into short-term Treasury bills, pushing the company’s cash position to a record US$325.2b.
The sales raise questions over Buffett’s motivations and his investment outlook, with the investor stockpiling an enormous level of cash unseen in the investment world.
He has been content to earn the relatively high yields on short-term US Treasury bills, even as the Federal Reserve has started to cut interest rates. The company earned nearly US$10 billion in interest on its cash and Treasury position over the past 12 months, including US$3.5b in the third quarter.
He has built up the company’s cash position before, saying the mountain of liquidity gives Berkshire an ability to pounce in a crisis. However, the company has faced far better-capitalised competitors in the years since the financial crisis. Heavyweights in the investment world, including Apollo and Blackstone, are often stepping in to finance companies looking to shore up their balance sheets.
It will set up a challenge for Buffett’s heir apparent, Greg Abel. The 62-year-old energy executive has been charged with leading Berkshire when Buffett eventually steps down, including having oversight over its US$271.7b stock portfolio.
The stock sales were disclosed as part of Berkshire’s quarterly earnings, which showed a decline in operating profits. The company’s insurance businesses have been buffeted by two hurricanes that pounded the southeast US.
Berkshire said Hurricane Helene resulted in losses of US$565 million in the third quarter, and that it anticipated losses of between US$1.3b and US$1.5b in the fourth quarter from Hurricane Milton, which struck Florida days later.
The insurance business has also agreed to pay US$535m to resolve asbestos-related talcum powder liabilities, pushing its reinsurance unit to a loss for the quarter.
Overall, operating profits fell 6% from a year earlier to US$10.1 billion. Buffett has long directed investors to its operating results, which do not include the swings in value of its mammoth stock portfolio. He has warned that reported net income is meaningless given the volatility of the stock market. In the quarter, net income swung to US$26.3b from a loss of US$12.8b a year before.
Class-A shares of Berkshire have rallied 25% this year, outpacing the total return of the S&P 500.
Written by: Eric Platt.
© Financial Times
