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Oracle of Omaha will sit on lots of dry powder when the S hits the fan and there will finally be some stocks worth buying.
By Wolf Richter for WOLF STREET.
Cash is king for Warren Buffett. His investment vehicle, Berkshire Hathaway, continued to dump its two biggest stock holdings in Q3, Apple and Bank of America. It was a net-seller of stocks for the eighth quarter in a row, selling $36.1 billion of stocks, and buying only $1.5 billion, for net sales of $34.5 billion. It didn’t buy back any of its own shares. And it further increased its already huge pile of cash, particularly its Treasury bills, according to Berkshire’s Q3 earnings report released on Saturday.
In the quarter through September 30, Berkshire Hathaway piled on an additional $48 billion in cash, cash equivalents, and Treasury bills, bringing the total cash pile to $325 billion, nearly double where it had been a year ago.
The increase was all in T-bills (+$53 billion); its cash and cash equivalents declined (-$5 billion).
Total cash holdings, including T-bills, jumped by $48 billion in Q3:
- Q3 2024: $325 billion
- Q2 2024: $277 billion
- Q1 2024: $189 billion
- Q4 2023: $167 billion
- Q3 2023: $157 billion
- Q1 2022: $106 billion, when interest rates on cash began to rise.
The pile of T-bills jumped by $53 billion, to $288 billion in Q3.
- Q3 2024: $288 billion
- Q2 2024: $235 billion
- Q1 2024: $153 billion
- Q4 2023: $130 billion
- Q3 2023: $126 billion
- Q1 2022: $67 billion.
Buffett piled on T-bills even as T-bill yields declined throughout the quarter. The 6-month T-bill yield fell by 90 basis points during Q3, from 5.3% to 4.4%. The 1-year yield fell by 110 basis points, from 5.1% to 4.0%. And yet, T-bill and chill.
If Berkshire earned an average of 4.8% on its T-bills in Q3, interest income from those T-bills would amount to $3 billion in the quarter, with zero credit risk and very high liquidity.
To put this $3 billion of interest income into perspective: That’s 50% more than Berkshire’s underwriting income from GEICO in Q3 ($2.0 billion) and 67% more than its operating income from its railroad BNSF ($1.8 billion).
This T-bill interest would amount to about 30% of Berkshire’s total operating profit (excluding capital gains) of $10.1 billion generated by the conglomerate’s insurance, freight rail, utilities & energy, manufacturing, service, and retailing businesses.
T-bill and chill has worked for Buffett.
More strategically, he now sits on this huge pile of dry powder to be deployed if and when the big S hits the fan, after which point there would be finally some stocks out there worth buying.
Ditching Stocks.
Berkshire dumped on net $34.6 billion of stocks in Q3, after dumping $75 billion of stocks in Q2.
Its Apple holdings were whittled down by another 25%; it dumped about 100 million shares in Q3, after having dumped 390 million shares in Q2. So far in 2024, Berkshire has dumped over 600 million of its Apple shares. Its holdings are down to about 300 million shares, from 908 million shares two years ago. That remaining stake was worth $69.9 billion at the end of Q3.
Apple has been hugely profitable for Berkshire. It first disclosed purchasing Apple in 2016 when the stock was in the $26-range. At the end of Q3, the stock was at $233 a share. On Friday, it closed at $222.91.
The media hype-and-hoopla that ensued when Buffett started buying Apple, and that re-ensued each time he disclosed more Apple purchases, was in part responsible for driving up the shares. Well done!
Its Bank of America holdings were also whittled down further in Q3, to about 794 million shares, from 1.03 billion shares at the peak, shaving his stake down from 13.2% to 10.2%, according to separate SEC filings. That remaining stake was worth $31.7 billion, according to the Q3 earnings report.
The remaining top five stock holdings at the end of Q3 were:
- Apple: $69.9 billion
- American Express: $41.1 billion
- Bank of America: $31.7 billion
- Coca-Cola: $28.7 billion
- Chevron: $17.5 billion.
Ditching bonds.
So far in 2024, Berkshire reduced by about 33%, or $8.5 billion, its holdings of notes and bonds, bringing the pile down to $15.7 billion at amortized cost (or $16.0 billion at fair value, including unrealized gains and losses). In Q3 alone, Berkshire shed $445 million in notes and bonds.
It is likely that a substantial part of these bonds came off the balance sheet by maturing – rather than by selling – where Berkshire got paid face value, and then reinvested the proceeds in T-bills. We can surmise this from the maturity details provided in the financials.
U.S. Treasury and U.S. government corporation and agency notes and bonds fell by 56%, or by $5.8 billion. At the end of Q3, Berkshire held $4.48 billion at amortized cost (or $4.52 billion at fair value), down from $10.3 billion at the beginning of the year.
The largest bonds holdings category is now foreign government bonds, at $9.86 billion, down from $11.79 billion at the beginning of the year.
Corporate bonds declined by $58 million to $1.15 billion so far this year. “Other” bonds dipped by $8 million so far this year, to $209 million.
Well over half ($9.7 billion) of the remaining $15.7 billion in notes and bonds will mature in one year or less. Another $5.13 billion will mature in one through five years. Only about 5%, or $837 million, mature after five years, exposing Berkshire to fairly minimal duration risk.
Ditching share buybacks.
Berkshire bought back none of its own shares in Q3. This indicates that Buffett thinks the shares are not a good deal relative to the rest of the market, and that the rest of the market is not a good deal either because Buffett has slashed his stock holdings for the eight quarter in a row. Just hanging on to the dry powder to be deployed after the S hits the fan, when good deals abound.
Share buybacks already had slowed to a crawl in Q2, just $345 million, down from $2.57 billion in Q1.
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The post Buffett T-bills & Chills: Piled up T-bills, Ditched Stocks, Bonds, and Share Buybacks in Q3 appeared first on Energy News Beat.
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