Berkshire Hathaway, Warren Buffett's fund has sold almost half of its stake in Apple representing the largest position in the Fund's portfolio. In doing so, the investment vehicle amassed a record amount of cash and short-term government bonds totalling more than $270 billion. Why did he make this decision?
Table of contents:
- Buffett's record cash and short-term government bonds
- Why did Buffett sell Apple shares?
- Apple's P/E ratio
Buffett's record cash and short-term government bonds
Berkshire Hathaway currently holds more short-term US Treasury bonds than the Federal Reserve. At the end of the second quarter of 2024, the fund had increased its holdings of these bonds by 81 per cent compared to the end of 2023, reaching $234.6 billion. This is a staggering amount given that the Federal Reserve currently holds $195.3 billion of them. These are expected to bring Buffett's firm around $12bn in safe profits per year. This is a record amount, even if we take the proportion of cash and said short-term bonds as a percentage of total assets. It accounted for 25 per cent of the fund's total balance sheet at the end of June. To date, it has hardly exceeded 16 per cent.
Source: Conotoxia Own study
Why did Buffett sell Apple shares?
The sale of Apple's shares surprised many investors following the actions of the 'Oracle of Omaha', as only three months earlier Warren Buffett had praised the company's actions. This reminds us of the basic investment principle advocated by New York University professor Aswath Damodaran: "keep your eyes on the price". Even the best company can be overvalued, as the legendary investor now apparently recognises. When Buffett first bought Apple's shares in 2016, the company's price-to-earnings (P/E) ratio was 12. This has now risen to 32. This means that although the company's business fundamentals have remained unchanged, its shares are now relatively almost three times more expensive than before, which may be an indication of its market overvaluation.
Apple's P/E ratio
Source: Macrotrends
The famous investor seems to be suggesting that there are currently few attractive opportunities among the largest US companies that could be potential investments for such a large fund, in fact we are seeing an oversaturation. Among the other deals Berkshire Hathaway has done is selling shares in Bank of America for $3.8 billion. So far, it was the second largest item in his portfolio, the contents of which we will know in detail in the coming days. This is because 15 August is the deadline for the 13F report, in which super-investors with more than $100 million in capital are required to report their transactions made on the US stock exchange in the last quarter.
Source: Conotoxia MT5, BerkshireHa, Daily
Grzegorz Dróżdż, CAI MPW, Market Analyst of Conotoxia Ltd. (Conotoxia investment service)
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