Warren Buffett’s Berkshire Hathaway significantly reduced its Apple holdings by nearly 50% in the second quarter. Despite this reduction, Buffett’s firm remains Apple’s most notable supporter. The remaining stake in Apple is substantial, as Berkshire has divested a total of 505 million shares since January 2024, representing a 55.8% decrease in its Apple holdings.
This raises questions about what may have influenced the seasoned investor’s decision. There are typically one or two reasons for purchasing a stock, primarily the expectation of price appreciation for profit-taking. Conversely, there can be numerous reasons for selling. Therefore, it is essential to explore the potential motivations behind Buffett’s actions. The first and most likely reason pertains to the U.S. economy.
Buffett may be growing increasingly cautious about the overall economic landscape. A disappointing jobs report, which revealed a 4.3% unemployment rate, has raised concerns regarding U.S. economic activity and whether the Federal Reserve delayed too long in reducing interest rates. This figure marks the highest unemployment rate since October 2021. This caution is reflected in Berkshire’s cash reserves, which have risen to $277 billion from $189 billion in just three months. The second reason could be a defensive strategy.
Analyzing the broader context of Berkshire’s operations and macroeconomic indicators suggests that the company is adopting a more defensive posture. Kathy Cyford, an analyst at CFRA Research, noted this shift following the announcement.
Buffett’s well-known preference for treasury bonds is also relevant here. Treasury bills, which are short-term securities issued by the U.S. government, are backed by its full faith and credit, making them among the safest investment options available.
In 2022, Berkshire Hathaway held an impressive $26 billion in U.S. treasury bills. Buffett reportedly favors these bonds over other investments to ensure that Berkshire’s cash reserves are securely allocated. Additionally, with yields having increased significantly over the past two years, Berkshire is benefiting from substantial interest income on its cash holdings. If the $126 billion is invested at a 5% yield, Berkshire would be generating an impressive $6.3 billion in interest.
