Berkshire Hathaway’s Cash Pile Set to Rise as Warren Buffett Cuts Bank of America Stake

Regulatory filings show that Berkshire Hathaway, which Warren Buffett leads, continues to cut the conglomerate’s stake in Bank of America and has trimmed the holdings by 15% since it started selling shares in mid-July. These stock sales could further add to the company’s already massive cash holdings which stood at $277 billion at the end of June.

Berkshire Hathaway has been gradually selling Bank of America shares and has sold shares in 21 of the 33 trading sessions since July 17. Also, it has sold shares for six consecutive trading sessions. Notably, Bank of America – which was once the second biggest holding for Berkshire Hathaway – has now fallen to the third rank, with long-time Buffett favorite American Express taking up the second position.

Warren Buffett Has Been on a Selling Spree

Warren Buffett has been on a selling spree and has net sold stocks – which means he sold more stocks than he bought – for seven consecutive quarters. Thanks to these stock sales and the ongoing cash that Berkshire’s different businesses generate, the company’s cash pile has been gradually rising.

Notably, Buffett has sold nearly half of the stake in Apple – a company that he has praised on multiple occasions in the past. However, despite the relentless selling, the iPhone maker remains Berkshire’s top holding by a fairly big margin.

At Berkshire Hathaway’s annual meeting in May, Buffett said that he was selling Apple shares over tax considerations. “It doesn’t bother me in the least to write that check and I would really hope with all that America’s done for all of you, it shouldn’t bother you that we do it and if I’m doing it at 21% this year and we’re doing it a little higher percentage later on, I don’t think you’ll actually mind the fact that we sold a little Apple this year,” said Buffett at this year’s shareholder meeting.

Notably, most economists agree that the US fiscal position is unsustainable and the country would need to cut down on the burgeoning debt which surpassed its GDP long back. Also, the annual interest payments on the debt topped $1 trillion last year. Even Fed chair Jerome Powell has called for an “adult discussion” among lawmakers on the soaring fiscal deficit.

Analysts Are Not Too Perturbed by Berkshire Selling Apple Shares

Wall Street analysts are meanwhile not too perturbed by Buffett selling Apple shares. “In our opinion, this could be for diversification or other reasons, and does not change our view on the fundamentals of Apple,” said Bank of America’s Wamsi Mohan in a note.

However, Bernstein analyst Toni Sacconaghi said that Buffett could have sold AAPL shares due to its valuations which don’t look comfortable for a value investor like Buffett.

Meanwhile, after losing the crown of the world’s largest company to Microsoft and then briefly to Nvidia, Apple has reclaimed the title. Analysts expect the stock to continue its good run in the back half of the year as it starts shipping the iPhone 16.

Buffett Has Sold Stakes in Many Banks

Notably, while Warren Buffett has a flair for banking and financial companies, and the secret company where he was building a stake turned out to be Zurich-based insurer Chubb, the Oracle of Omaha has sold stakes in many banks over the last couple of years.

These include Wells Fargo where Berkshire once held a nearly 10% stake. Also, Buffett exited names like JPMorgan Chase and Goldman Sachs. Incidentally, while Buffett has held fat stakes in leading banks, he ensured that Berkshire’s stake remained below 10% to escape regulatory scrutiny.

He however made an exception for Bank of America and increased Berkshire’s stake in the second-largest US bank beyond 10% after getting regulatory approval.

While we still don’t know the reasons behind Buffett trimming his stake in Bank of America, the nonagenarian might be worried about broader market valuations.

Berkshire Hathaway’s Market Cap Topped $1 Trillion

Meanwhile, while Buffett might be wary of the soaring stock markets, the frenzy has helped catapult Berkshire into the ranks of $1 trillion companies. The conglomerate became the first non-tech US company to achieve the feat and joined tech giants like Apple, Microsoft, Amazon, and Nvidia in the coveted club.

The S&P 500 has closed with gains for four consecutive months. While August started on a somber note for US stocks and stocks crashed amid the global meltdown, they recovered eventually.

Among others, rising optimism over a September Fed rate cut has helped improve market sentiments. Speaking at the Fed’s annual retreat in Jackson Hole last month, Powell said, “The time has come for policy to adjust.” He added, “The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.”

Warren Buffett Does Not Look Too Bullish on US Stocks

Notably, the consensus view was quite circumspect from US stocks at the beginning of 2024 and the majority of analysts saw a flattish market this year.

However, the rally in tech stocks helped catapult US stocks to record highs and brokerages have raised their target for the S&P 500.

Morgan Stanley’s Investment Management’s Andrew Slimmon believes that the S&P 500 would be “closer to” 6,000 by the end of 2024 after bottoming in October.

Warren Buffett meanwhile does not seem to be as optimistic about US stocks, or at least that’s what we can reasonably infer from his relentless stock sales which look set to lift Berkshire’s cash pile to another record high this quarter.