Warren Buffett’s Berkshire Hathaway has sold $133 billion worth of stocks in the first nine months of 2024. The company reduced its stakes in Apple, American Express, and Bank of America, which made up a large portion of its portfolio. Buffett is raising cash at a time when the market is trading at historically high levels.
However, Buffett continues to hold shares of Coca-Cola and American Express. He has a long history of investing in top consumer brands like Coca-Cola. Buffett invested a fifth of Berkshire’s equity in Coke stock in 1988 and has never sold a single share.
The company should continue to grow earnings as it gains market share. American Express has been held by Berkshire for 30 years. The company stands out in the credit card industry with its customer service and card membership model.
American Express card members spend more on average than customers of other card brands. The company is on pace to report strong earnings growth for 2024 despite recent weakness in consumer spending. Buffett’s decision to keep substantial holdings in Coca-Cola and American Express shows his confidence in their competitive strengths and growth prospects.
As the market navigates the complexities of 2024, these long-term bets provide insight into the investment strategies of one of the most successful investors of all time. Theories abound as to why Berkshire Hathaway is currently sitting on a record $325 billion in cash. Buffett has overseen large-scale reductions of several key positions over the past year.
The company’s sales of equities through the first nine months of 2024 total $133 billion. This comes at a time when markets are hitting historic highs.
Buffett’s shift: strategic stock sales
Buffett’s past actions may hold the answer to what he plans to do with all this cash. In the aftermath of the 2008 financial crisis, Buffett made strategic investments in companies like Goldman Sachs, Bank of America, and General Electric. These investments were critical to each company’s recovery and enriched Berkshire’s shareholders.
In his 2023 letter to shareholders, Buffett made it clear that he sees Berkshire as a sort of insurer for America’s economy, ready to step in when needed. He believes that major upsets are worsened by the greed and “feverish activity” of much of Wall Street. If current market dynamics lead to another crash, Berkshire is in a position to help save Wall Street from itself with its $325 billion cash reserve.
There are other possibilities for why Berkshire has a record pile of cash on hand. Buffett may have a specific target in mind or be preparing the company for the period of transition that will come when he passes. However, his words and past actions suggest that preparing Berkshire to weather a financial crisis is a primary motivator.
For Canadian investors, Buffett’s recent actions raise interesting questions. While the S&P 500 continues to hit all-time highs, Buffett has been a net seller of stocks for eight straight quarters. His rare investment in Domino’s Pizza suggests he sees value in the beaten-down restaurant chain.
Buffett’s move offers a masterclass in patience for Canadian investors. He appears to be keeping his powder dry for better opportunities given current high market valuations. For instance, Apple now trades at a much higher price-to-earnings ratio compared to when Berkshire first bought the stock in 2015.
In sum, Warren Buffett’s defensive moves signal a cautionary stance amid high market valuations. Canadian investors might benefit from exercising patience and waiting for more attractive opportunities to arise, taking a page out of Buffett’s book.
