What is the intention behind the "stock god" cashing out extensively? The answer will be revealed in 3 months!

Warren Buffett is retracting his most profitable trade in history, injecting a large amount of cash into Berkshire Hathaway's coffers. However, it remains unclear whether the "Oracle of Omaha" intends to use his recent windfall to "hunt elephants."

Buffett revealed last Saturday that he continued to reduce his holdings in stocks like Apple in the third quarter, bringing in $97 billion in profits for Berkshire Hathaway, the massive industrial-insurance conglomerate that Buffett has controlled since 1965.

By locking in profits, Buffett has raised Berkshire's cash levels to unprecedented heights. As of now, cash accounts for 28% of Berkshire's asset value, reaching $325 billion—its highest level since at least 1990. This has led his followers to try to decipher the motivations behind his stock sales.

Some investors and analysts believe that Buffett is sticking to his principles, which he learned under the legendary value investor Benjamin Graham—first at Columbia University and then at Graham's investment firm. They point out that, relative to its potential earnings growth, Apple's price-to-earnings ratio is relatively high.

Apple warned investors this week that its future products may never be as profitable as the iPhone, as it is pouring funds into artificial intelligence in an attempt to catch up with competitors, including Google's parent company Alphabet.

Others believe that given Buffett's long-standing admiration for Apple and the scarcity of investment opportunities, there are other reasons behind his actions. They can't help but wonder whether Buffett is paving the way for his successor or anticipating an impending crisis, thus raising cash.

Morningstar analyst Greggory Warren noted, "This is really strange... It begs the question, 'Why is Buffett accumulating so much cash?'"

Warren stated that he does not believe Buffett is preparing to make a large acquisition, which has been a hallmark of his investment strategy, as he has faced difficulties competing with other buyers. Berkshire has also not engaged in funding large U.S. companies like Intel, which have been seeking billions of dollars to fund their operations.

This year, Buffett has also restricted purchases of other stocks, having bought only $5.8 billion worth of stocks by the end of September. This figure is far below the $133.2 billion in stock sales executed by Berkshire.

These sales have reduced the equity risk taken on by Berkshire and provided ample liquidity for investment, which has proven beneficial during times of stress in the past. However, some investors sense that other factors are contributing to this shift.

Jeff Muscatello, a research analyst at Berkshire investment firm Douglass Winthrop, stated that valuation is unlikely to be the "whole reason" for Buffett's cashing out. He said, "The impending and inevitable management transition makes it a good time to make room for the next generation." Morningstar's Warren agrees, stating that this cash is likely to be utilized by Buffett's successor, Greg Abel.

Warren said, "Buffett has become more cautious when discussing Berkshire and the future. He knows he won't be in that position for much longer. He doesn't want to leave these issues for his successor to handle. He added, 'He wants Greg to have more cash reserves.'"

Berkshire has maintained a large cash position, partly to meet regulatory requirements that its portfolio must have sufficient liquidity to cover future claims from its massive insurance business.

Berkshire's investment in Apple dates back to 2016, when the company purchased nearly 10 million shares worth $1.1 billion. Given that Berkshire has long avoided fast-growing tech companies, this acquisition was shocking. As early as 2012, Buffett told shareholders that even with Apple's increasing profitability, he "didn't want to buy" Apple.

According to insiders, this initial investment was made by Buffett's deputy, Ted Weschler. In the following months, Buffett himself began to appreciate Apple's business model, attracted by the long time customers spend using iPhones and the rarity of customers willing to switch to other brands after purchasing an iPhone.

Buffett quickly followed Weschler's lead, starting to buy aggressively and collaborating with a small fund under Berkshire to acquire a 5.9% stake in Apple. At its peak last year, this position was worth nearly $178 billion. Quarterly disclosures analyzed by the Financial Times show that Berkshire spent about $39 billion.

Buffett's followers believe there is ample reason to trust Buffett's assertion: he finds the returns on short-term Treasury bills more attractive than the "alternative returns available in the stock market," as he stated in May.

Bill Stone, Chief Investment Officer of Glenview Trust, said, "Since then, stocks including Apple and Bank of America have not become cheaper; it seems that simple."

According to FactSet data, Apple shares are currently trading at over 30 times their expected earnings for the next year. Darren Pollock, a fund manager at investment group Cheviot and a Berkshire Hathaway shareholder, pointed out that when Buffett bought in, this multiple was closer to 12 or 13 times, while "Apple's growth rate was much faster."

Pollock added, "When stocks are overvalued, Berkshire's cash reserves increase because Buffett finds fewer things to buy. He is not a market manipulator. Selling Apple shares in an overvalued market and holding so much cash is typical Buffett style."

Investors will have to wait another three months to determine the outcome. The company noted that Buffett will share any thoughts on the matter in his annual letter to be released in February next year.