Warren Buffett’s Cash Strategy: Building a Record Cash Fortress
As the financial markets continue to break new records, Warren Buffett is strategically amassing cash at an extraordinary pace. Berkshire Hathaway’s cash reserves soared to an unprecedented $325.2 billion by the end of September, a significant increase from $276.9 billion in the previous quarter, as revealed in the company’s recent earnings report. Interestingly, Berkshire Hathaway has decided to halt share buybacks, opting instead to hold this substantial cash reserve.
Cash Balance Skyrockets!
Over the past two years, Buffett’s cash reserves have skyrocketed to remarkable levels. The cash balance now exceeds the market capitalization of all but 27 public companies globally. Remarkably, this figure surpasses the market cap of major companies such as Netflix and Bank of America. A significant factor contributing to this surge in cash was Berkshire’s strategic sale of Apple stock. In the third quarter of 2024 alone, Berkshire divested $14.3 billion worth of Apple shares, reducing their holdings to $69.9 billion.
Over the last two quarters, Warren Buffett has sold approximately $100 billion worth of Apple shares. This strategic move comes at a time when the market is experiencing an extraordinary rally, with the S&P 500 achieving a remarkable 40% increase over the past year.
No Buybacks
Amidst this period of selling, Berkshire Hathaway has refrained from repurchasing any of its shares. This decision marks a notable shift, as repurchase activity had already begun to slow earlier in the year. Berkshire shares have outperformed the broader market, reaching record highs. In the third quarter of 2024, Berkshire purchased no stock, contrasting sharply with the $345 million buyback in the second quarter of 2023 and $2 billion in each of the two preceding quarters. According to Buffett, stock buybacks occur when the repurchase price is below Berkshire’s intrinsic value.
Berkshire Hathaway’s Class A shares have gained 25% this year, surpassing the S&P 500’s year-to-date return of 20.1%. The conglomerate achieved a significant milestone by reaching a $1 trillion market cap in the third quarter, marking an all-time high.
Buffett De-risking the Balance Sheet?
It appears that Warren Buffett is actively de-risking Berkshire Hathaway’s balance sheet. In addition to liquidating holdings, he has increased the company’s Treasury Bill holdings to $288 billion. This move may reflect Buffett’s cautious approach in response to the heightened levels of market optimism. One of his famous quotes advises, “Be fearful when others are greedy, and be greedy when others are fearful.”
In a previous instance when Buffett trimmed his Apple holdings, the stock experienced a nearly 6% decline. This decision could potentially exert downward pressure on the stock market come Monday.
Growing Institutional Adoption
In the second quarter of 2024, there was a notable 14% increase in the number of institutional investors holding Bitcoin exchange-traded funds (ETFs), totaling 1,100. This rapid adoption rate is unprecedented for any ETF in history. Despite Buffett’s persistent criticism of Bitcoin, asserting that it lacks intrinsic value, Bitcoin surprised the financial world last year by surpassing Berkshire Hathaway in market capitalization.
Will Buffett Soon Change His Stance Towards Bitcoin?
Michael Saylor, CEO of MicroStrategy, recently hinted in a tweet that Warren Buffett should consider following MicroStrategy’s lead. MicroStrategy has been steadily accumulating Bitcoin since August 2020 and is currently the largest corporate holder of the cryptocurrency.
Despite maintaining his critical viewpoint on cryptocurrencies, Berkshire Hathaway has reaped substantial gains through its investment in Nu Holdings. Initially investing $500 million in a Series G funding round, followed by an additional $250 million, Berkshire’s involvement has proven to be highly profitable. Nu Holdings’ impressive performance, with a 100% market surge in 2023 and an additional 50% rise in early 2024, presents a stark contrast to Buffett’s negative stance on Bitcoin.
Meanwhile, Bitcoin itself is experiencing a remarkable year in 2024, significantly outperforming indices like the S&P 500. This situation places Buffett in a challenging position, as Nu Holdings’ performance, up nearly 125% this year, contradicts his critical perspective on Bitcoin. The question remains: will Warren Buffett eventually reconsider his stance towards Bitcoin, given its remarkable performance and growing institutional appeal? Stay tuned to find out more.
