Cash reserves surged to 2,307.8 billion! What signal is Buffett sending?

Every major portfolio adjustment by Warren Buffett has almost never resulted in significant mistakes.

Since the second half of last year, Buffett's selling has accelerated. Apart from significantly reducing his holdings in Apple, Bank of America was also not spared. The primary reason behind Buffett's decision is likely his concern about future risks in the U.S. stock market.

For Buffett, once a trend is established, it is unlikely to stop in the short term.

On November 2 local time, Berkshire Hathaway, the company under Buffett's control, released its Q3 financial report. The report showed that Berkshire's total revenue for Q3 was $92.995 billion, slightly down from $93.210 billion in the same period last year. Net profit was $26.251 billion, a turnaround from a net loss of $12.767 billion year-on-year. Operating profit was $10.09 billion, lower than $10.761 billion in the same period last year.

This performance was largely in line with market expectations.

What the market is more focused on is Berkshire's quarterly holdings. Every major adjustment in Berkshire's portfolio almost becomes a market bellwether, offering strong reference value.

Specifically, in Q3, Berkshire continued to sell stocks aggressively, including Apple and Bank of America.

The financial report showed that Buffett sold another 100 million shares of Apple in Q3, reducing his total holdings to around 300 million shares, with the market value dropping to $69.9 billion.

It is reported that at the beginning of the year, Berkshire held approximately 905 million shares of Apple. In just three quarters, it sold two-thirds of its Apple holdings.

In Q1, Buffett emphasized that the reason for reducing Apple $Apple(AAPL.US) was due to tax considerations. He stated that Apple is a good business and that unless something major happens, the reduction was not a reflection of the company's fundamentals.

From Apple's fundamentals, its performance remains strong with no significant fluctuations. Therefore, the large-scale reduction in Apple holdings was likely a carefully considered decision by Berkshire's board and not targeted solely at Apple but part of Berkshire's broader strategic direction.

According to the financial report, Berkshire's cash reserves stood at $189 billion in Q1. By Q2, they surged to $276.9 billion, hitting a record high. Driven by this momentum, Berkshire continued selling in Q3, with cash reserves rising to $325.2 billion (approximately RMB 2.3078 trillion).

Moreover, in Q3, Berkshire unusually refrained from repurchasing its own shares.

It is reported that Berkshire's $133 billion in stock sales this year generated $97 billion in gains, equivalent to a post-tax return of $76.5 billion for the group.

In Q3, Berkshire's top five holdings were Apple, American Express, Bank of America, Coca-Cola, and Chevron, with market values of $69.9 billion, $41.1 billion, $31.7 billion, $28.7 billion, and $17.5 billion, respectively. Notably, Berkshire significantly reduced its holdings in Apple and Bank of America during Q3.

Currently, Berkshire's holdings have declined to relatively low levels. We believe Buffett's selling will continue in Q4, and this trend will persist in the short term.

Some analysts suggest that Buffett's aggressive selling of Apple shares might be related to Charlie Munger's passing, as Buffett, unlike his long-time partner Munger, is not as adept with tech companies. He mentioned that if Munger were still alive, Buffett might not have sold Apple so aggressively—or at all.

Regarding this view, Kanjian Finance believes that while Munger's death might have influenced Buffett's selling, it is unlikely to be the sole reason for the "clearance-style" reduction in Apple holdings.

We believe Buffett's decision stems from two factors: First, the substantial risks accumulated from the U.S. stock market's past rally mean Berkshire's massive cash reserves can help the company navigate future uncertainties. Second, at 94 years old, Buffett's tenure is nearing its end, and maintaining high liquidity ensures a smoother transition for his successor. Therefore, Berkshire's record cash reserves are likely preparations for the leadership handover.