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Warren Buffett Just Sent a $325 Billion Warning to Stock Investors

Updated: 08-11-2024, 10.01 AM

Warren Buffett is one of the most well-respected portfolio managers in the world, and there’s good reason for that. His track record speaks for itself.

After taking control of Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) in 1965, he grew the value of shareholders’ stakes by an average compound annual rate of 19.8% through 2023. By comparison, the S&P 500 produced a total compound annual return of 10.2% in that period. Berkshire’s beating the market benchmark so far in 2024 as well.

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Maintaining such a strong track record over such a long period doesn’t come without some level of skill in managing a portfolio and downside risk. Berkshire’s best years of outperformance typically come when the rest of the market fails to meet its average returns. And Buffett just sent one of his biggest warnings yet that he doesn’t like what he’s seeing in the stock market today.

After selling more of Berkshire’s equity portfolio, including massive portions of its stakes in Apple (NASDAQ: AAPL) and Bank of America (NYSE: BAC), the company ended the third quarter with a record $325 billion in cash and Treasury bills on its balance sheet. That’s up $48 billion from the previous quarter.

Here’s how Berkshire got here, and what it means for investors.

Warren Buffett.
Image source: The Motley Fool.

Buffett has been a net seller of stocks in each of the last eight quarters. And in the second quarter, he sold $36.1 billion worth of stock and bought just $1.5 billion. Among Buffett’s biggest stock sales in that quarter were Apple and Bank of America.

Based on the data provided in Berkshire Hathaway’s quarterly earnings, Buffett slashed Berkshire’s remaining stake in Apple by 25% during the quarter, leaving the company with approximately 300 million shares of the stock. That’s less than one-third of the position Berkshire held a year ago.

Buffett started selling Apple shares in the fourth quarter of last year, but the sales took a big step up in the second quarter. When asked about the sales during Berkshire’s annual shareholder meeting, Buffett told the audience it’s “extremely likely” Apple will remain Berkshire’s largest equity holding at the end of the year. With three months left in the year, that remains true. Apple accounted for over 25% of Berkshire’s $271.7 billion portfolio at the end of the third quarter.

In Q3, Buffett also turned his attention to Berkshire’s second-largest equity position at the time, Bank of America. He sold $9.6 billion worth of the stock last quarter. He also sold $900 million of shares in October before Berkshire’s stake in the bank fell below SEC reporting requirements.

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