"Warren Buffett," the "Oracle of Omaha," continues to significantly reduce his Apple holdings, while cash reserves reach a new high! Does the old man sense a major stock market drop ahead?

According to the Zhitong Finance APP, Berkshire Hathaway Inc., led by the "Oracle of Omaha" Warren Buffett, continued to significantly sell off its holdings in Apple Inc. (AAPL.US) stock in the third quarter, reducing its Apple stock holdings to just a small fraction of the massive position it held at the beginning of the year. Additionally, Buffett continues to demonstrate his "cash is king" strategy, with Berkshire Hathaway's cash reserves reaching a new all-time high. This world-renowned stock investor has shown a strong preference for cash this year, interpreted by the market as a bet that the U.S. economy may face turmoil. As of the end of the third quarter, the institution held as much as $325.2 billion in cash.

Berkshire Hathaway's latest financial report indicates that after reducing its stake in Apple by nearly half in the second quarter, it further cut its Apple holdings by approximately 25% during the third quarter. As of September 30, Apple's stock price had risen by 10.6%, and it has increased by 16% year-to-date. Based on Berkshire's average cost price for Apple, the returns over the past seven years have reached as high as 5.4 times, excluding dividends.

Regarding the logic behind the sale of Apple shares, Buffett himself stated at the Berkshire annual meeting in May that the reduction in Apple positions in the first quarter was primarily driven by potential tax implications. He anticipated that the U.S. government might raise capital gains tax rates and indicated that the tech giant Apple would still be the largest investment target for this major investment group based in Omaha, Nebraska.

However, the market does not share this view. Buffett's recent reduction in holdings and cash accumulation stands in stark contrast to his calls to "buy U.S. stocks" during the 2008 global financial crisis. Some investment institutions suggest that Buffett's actions indicate that the 94-year-old "Oracle of Omaha" is signaling his concerns about the uncertainty of Apple's fundamentals. Combined with Buffett's "liquidation-style" sell-off of Bank of America (BAC.US) and significant reductions in Hong Kong stock holdings this year, it reflects his strong concerns about the current overvaluation of the U.S. stock market and the global stock market's return scenarios.

Berkshire's stock value is currently only $69.9 billion, down from about $174.3 billion at the end of last year, a decline of nearly 60%. However, the actual situation may remain similar throughout this year. Since the last Berkshire annual meeting, Buffett has not disclosed his views on Apple or the U.S. stock market and global economy again. At the last annual meeting, Buffett expressed a relatively cautious overall attitude toward the U.S. stock market, stating that the current market atmosphere resembles a casino more than it did when he was younger.

It is worth noting that if we use the Buffett Indicator (the ratio of total stock market capitalization to GDP) as a valuation measure, the current valuation of the U.S. stock market is indeed expensive. In July of this year, the Buffett Indicator reached a historical high of 200%, surpassing the previous record of 197% set in November 2021. According to analysts, the normal range for the Buffett Indicator is between 50% and 150%. If this ratio remains above 200% for an extended period—similar to certain times in 1999 and 2000—it indicates a severe stock market bubble Shortly after the Buffett Indicator peaked in November 2021, global stock markets experienced a painful bear market lasting a year.

Warren Buffett continues to reduce his holdings in Apple—Berkshire Hathaway's stake in this iPhone manufacturer has decreased in value by about 60% since the beginning of the year.

There is no doubt that, in terms of the outlook for Apple stock, the company is facing a series of severe challenges, including a lack of meaningful sales growth data for its flagship product, the iPhone. Last week, Apple executives told investors during an earnings call that they expect sales growth for the quarter ending in December to be in the low to mid-single digits, below market expectations for the crucial holiday shopping season.

Additionally, iPhone sales in China, one of its largest markets, continue to decline, while domestic competitors are seeing their sales figures grow. Antitrust regulators on both sides of the Atlantic are also intensifying their scrutiny of Apple regarding antitrust and competition issues. Apple is also lagging behind competitors like Google and domestic smartphone brands in terms of AI integration. Last week, Apple launched a milestone "AI upgrade" for its iPhone, iPad, and Mac products but informed customers that some of the most anticipated AI features would not be available until December.

"I personally believe that Warren Buffett has never really been satisfied with tech stocks; his investment philosophy cannot tolerate overvalued tech stocks," said Jim Shanahan, an analyst from Edward Jones.

"The large-scale selling of stocks certainly began after Charlie Munger's passing," Shanahan said, referring to Buffett's long-time business partner who passed away in 2023. "Munger's philosophy may always have been more suited to a tech stock like Apple than Buffett's."

Another analyst suggested that Buffett's large-scale sell-off of Apple, which has already generated significant profits, could simply be attributed to a straightforward portfolio rebalancing.

Kathy Seifert, a research analyst from CFRA, stated that Apple's stock held by Berkshire Hathaway "has started to occupy too high a proportion" of its overall stock portfolio. "I think it makes sense to mitigate some of this risk based on achieving substantial profits."

Here are other key points from Berkshire Hathaway's third-quarter performance:

Berkshire's cash is "piling up."

Berkshire's cash reserves have once again reached a record high, as the world's most famous investor-led investment firm continues to struggle to find ways to spend. As of the end of the third quarter, the company held up to $325.2 billion in cash reserves. Furthermore, in terms of short-term U.S. Treasury securities (i.e., U.S. government bonds with maturities of one year or less), Berkshire's holdings of short-term U.S. Treasury securities have been expanding, and the scale of its holdings is much larger than that of the Federal Reserve's short-term U.S. Treasury holdings Since the beginning of this year, the substantial gains from the surge in short-term U.S. Treasury bonds, driven by the bond price spread and interest, may rival the returns from Warren Buffett's stock portfolio.

Short-term, highly liquid financial instruments, such as Treasury bonds with maturities of one year or less, commercial paper, and bank deposits, are often viewed by investors as cash equivalents that can be quickly liquidated due to their high liquidity, extremely low risk, and price stability, thus meeting the demand for immediate redemption.

The market perceives that the 94-year-old Buffett is avoiding risks. The significant sell-off of Apple shares by Buffett's Berkshire Hathaway, combined with the recent "liquidation-style" sale of shares in Bank of America and the accumulation of short-term U.S. Treasury bonds, has been interpreted by the market as the "Oracle of Omaha" seemingly betting on a downturn in the U.S. economy.

Buffett publicly stated at the annual meeting that the company is not in a hurry to deploy its accumulated cash to buy more stocks, "unless we believe what we are doing is very low risk and can make us a lot of money."

"In the current environment, I wouldn't mind increasing cash positions at all," Buffett commented at the May annual shareholder meeting. "When I see what's available in the stock market and what's happening in the world, I think cash is very attractive."

Sticking to a "Net Seller" Strategy This Year

Financial reports show that Berkshire net sold $34.6 billion in stocks in the third quarter, bringing the total net sales to $127.4 billion since the beginning of the year. Compared to last year, the pace of disposals by the firm has been much faster, with net stock sales of only $24.2 billion over the past 12 months.

A Quarter Without Buybacks

In the third quarter, "Oracle of Omaha" Buffett even refused to buy back Berkshire's own stock, marking the first time since the company changed its policy in 2018. This move seems to indicate that even Buffett does not find the current price and valuation of his own stock attractive.

In the second quarter, the company repurchased up to $345 million in stock, while a year ago it repurchased up to $1.1 billion. Since 2018, Berkshire Hathaway's stock price has been on the rise. The stock price of Berkshire Hathaway has increased by about 25% this year, bringing its market capitalization to approximately $974.3 billion.

Hurricane Losses Cannot Be Ignored

It is worth noting that Hurricane Hilary in September had a negative impact of about $565 million on Berkshire's profits for the quarter, specifically, Berkshire's underwriting profit fell by 69% year-on-year.

Berkshire expects that another hurricane, Milton, in North America in October will lead to a significant pre-tax earnings reduction of $1.3 billion to $1.5 billion in the fourth quarter. Berkshire anticipates that the pre-tax insurance losses from Hurricane Milton in October will be between $1.3 billion and $1.5 billion, with the related loss data reflected in the fourth quarter's performance report.

Operating Profit Decline

Berkshire's operating profit in the third quarter fell by about 6% year-on-year to $10.1 billion, although approximately $1.1 billion in foreign exchange losses played a significant role during this period Berkshire's insurance underwriting revenue in the third quarter fell sharply by 69% to $750 million, partly due to significant losses in its core insurance division caused by hurricanes