Berkshire Hathaway, led by Warren Buffett, continued to reduce its stock market exposure in the third quarter. Notably, the company significantly decreased its stake in Apple while simultaneously increasing its cash reserves to a record-breaking $325.2 billion.
In their quarterly report published on Saturday, Berkshire revealed that it divested approximately 100 million shares of Apple, representing a 25% reduction in its holdings, leaving the company with approximately 300 million shares.
As of 2024, Berkshire Hathaway has divested over 600 million shares of Apple Inc., despite it remaining the company's largest equity holding with a valuation of $69.9 billion.
Overall, the company sold $36.1 billion in stocks, which included several billion dollars worth of Bank of America shares, while making only $1.5 billion in purchases.
This marks the eighth consecutive quarter in which Berkshire has been a net seller of stocks.
The Omaha-based conglomerate also refrained from any stock buybacks for the first time since the second quarter of 2018 and did not repurchase any shares in the first three weeks of October.
"Berkshire reflects the broader economic landscape," noted Cathy Seifert, an analyst at CFRA Research in New York. "Its accumulation of cash indicates a 'risk-off' approach, raising concerns among investors about the implications for the economy and the markets."
Berkshire's Class A shares have appreciated by 25% this year, compared to a 20% increase in the Standard & Poor's 500 index.
Concerns have arisen among some investors regarding rising valuations, leading to fears that many stocks may be overvalued.
Berkshire's cash reserves increased from $276.9 billion at the end of June, now exceeding the $30 billion buffer that Buffett has committed to maintaining.
Since 2016, Buffett has not made any significant acquisitions of entire companies for his $975 billion enterprise.
Jim Shanahan, an analyst at Edward Jones in St. Louis, remarked that the growing cash reserves raise questions about whether Buffett perceives stocks as overvalued, anticipates an economic downturn, or is preparing for a major acquisition.
In May, Buffett indicated that he expected Apple to continue being Berkshire's largest stock investment, but acknowledged that selling was prudent due to the likelihood of an increase in the federal tax rate on gains.
OPERATING PROFIT FALLS
Berkshire Hathaway's quarterly operating profit experienced a 6% decrease, amounting to $10.09 billion, or approximately $7,019 per Class A share. This figure fell short of analyst expectations, which were set at $7,611 per share, as reported by LSEG IBES.
The drop in profit was primarily attributed to underwriting losses from older insurance policies, claims associated with Hurricane Helene in September, and currency losses due to a stronger U.S. dollar.
These challenges overshadowed the improved profitability at Geico, where accident claims decreased. Additionally, profits increased at BNSF railroad, which saw a rise in consumer goods shipments, and at Berkshire Hathaway Energy, where operating expenses were reduced.
Seifert noted that while Berkshire has historically benefited from its diverse portfolio, the company faced "multi-pronged" challenges during the quarter.
This included a significant 19% revenue drop at the Pilot truck stop chain, driven by lower fuel prices and reduced marketing volumes. Furthermore, Berkshire reported that nearly all of its retail operations, including over 80 car dealerships, are experiencing revenue declines.
Net income reached $26.25 billion, a notable improvement from a loss of $12.77 billion in the previous year, largely due to unrealized gains and losses from stock investments, including Apple.
Buffett advises investors to disregard the volatility in net results and instead concentrate on the company's operating performance.
HELENE, MILTON
Berkshire Hathaway experienced a significant decline in insurance underwriting profits, which plummeted by 69%. This drop was primarily attributed to losses from older policies, including a $565 million hit from Helene and a bankruptcy settlement related to a now-defunct talc supplier. This decline overshadowed a remarkable 93% increase in Geico's underwriting profits.
Shanahan described the policy losses as a "big surprise," while Seifert noted that many of Berkshire's competitors have already tackled similar challenges. "This situation highlights Berkshire's position as a laggard," she remarked.
Additionally, Berkshire anticipates pre-tax losses ranging from $1.3 billion to $1.5 billion in the fourth quarter due to Hurricane Milton, which struck Florida in October.
Investment income from Berkshire's insurance operations, which manage a substantial portion of the company's cash, surged by 48% to reach $3.66 billion.
However, these gains may diminish if the Federal Reserve continues to lower interest rates or if Buffett identifies a significant investment opportunity.
Buffett is keen to invest every available dollar into ventures that offer Berkshire a competitive edge, yet he remains open to holding back when necessary, according to Tom Russo, a principal at Gardner Russo & Quinn in Lancaster, Pennsylvania, who has been investing in Berkshire since 1982.
"He will be prepared and ready to act when other investors are feeling despondent or facing capital constraints," Russo added.
The Berkshire portfolio also includes a diverse range of industrial and manufacturing companies, a prominent real estate brokerage firm, and well-known retail brands such as Dairy Queen and Fruit of the Loom.
On October 31, Berkshire Hathaway successfully concluded the acquisition of the remaining 8% stake in Berkshire Hathaway Energy, thereby achieving full ownership of the company.
Buffett, who has served as the esteemed Chairman and CEO of Berkshire Hathaway since 1965, is anticipated to eventually transition the leadership responsibilities to Vice Chairman Mr. Greg Abel, who is currently 62 years of age..