Buffett's investment strategy: caution in the face of the future and giant cash reserves

08.05.2024 09:49|Investment Advice Department, Conotoxia Ltd.

Warren Buffett shared his thoughts on the future at Saturday's Berkshire Hathaway shareholders' meeting. What the famous American millionaire is currently investing in, what he is selling and what he expects in the coming years.

Table of contents:

  1. Berkshire is sitting on the most cash pie
  2. Apple and Paramount share sale?
  3. Buffett on his expectations?

Berkshire is sitting on the most cash pie

If we look at Buffett's investment portfolio, we see that as much as 16.8 per cent of the total portfolio is made up of cash, cash equivalents and short-term securities. Berkshire's cash holdings reached a record $188.99 billion, up from $167.6 billion in the fourth quarter of last year.Buffett previously revealed that he buys three-month and six-month Treasury bills every Monday. Berkshire Hathaway's holdings of cash and short-term Treasury bills have been growing almost continuously for many years.

Berkshire portfolio chart

Source: Conotoxia own analysis

Does this mean Buffett is increasingly preparing for stock market falls? "We only swing at pitches we like," Buffett said when asked why he did not use his funds for new investments. "We don't use it now at 5.4% but we wouldn't use it if it was at 1%. Don't tell the Federal Reserve," he added jokingly. However, if we look at the amount of cash relative to book value, we see that it is not far from the average of the past 10 years. 

"Our cash and Treasury bills were $182 billion at the quarter end, and I think it's a fair assumption that they'll probably be at about $200 billion at the end of this quarter," Buffett said.

chart cash quantity

Source: Conotoxia own analysis

Apple and Paramount share sale?

Berkshire Hathaway has once again reduced its stake in Apple. They now value their stake in the company at around US$135.4 billion, a 13 per cent reduction in investment.

Buffett's decision to sell surprised many, given his enthusiasm for the company, which he called his second most important company after insurance group Berkshire. Buffett admitted that the previous 2020 Apple stake reduction may have been a mistake, and that the latest cuts were motivated by tax considerations rather than a negative assessment of the stock's future prospects.

Apple chart

Source: Conotoxia MT5, Apple, Daily

Warren Buffett has announced that Berkshire Hathaway has sold all of its shares in media and entertainment giant Paramount Global at a significant loss. "It was 100 per cent my decision. We sold everything and lost a lot of money," he said. Buffett, adding that the situation had made him rethink people's priorities in his spare time.

Paramount chart

Source: Conotoxia MT5, Paramount, Daily

Buffett on his expectations?

Reflecting on the future, Buffett, said that while renewable energy is of interest to him, development in this industry takes time. "The Oracle of Omaha" likened the situation to the inability to speed up a pregnancy by impregnating nine women at once. However, he added that solar systems will probably never be the only source of electricity.

Buffett also addressed the question of Berkshire's future after his departure, noting that despite his advanced age, which will reach 94 in August, he still feels able to work. He identified Greg Abel as his successor as CEO, reflecting on what Berkshire's investment decisions will look like after his departure.

Referring to the possibility of Berkshire Hathaway paying its first dividend, Buffett expressed a preference for using capital in a more profitable way than paying dividends. He confirmed that the choice of the method of returning capital to shareholders is at the discretion of the CEO.

It appears that we are again in a situation where Buffett will be cautious about making new acquisitions for many quarters. This will translate into an increasing proportion of cash to capital held.

Berkshire Hathaway chart

Source: Conotoxia MT5, BerkshireHa, Daily

 

Grzegorz Dróżdż, CAI MPW, Market Analyst of Conotoxia Ltd. (Conotoxia investment service)

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71.48% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 71.48% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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