Warren Buffett told Berkshire Hathaway shareholders in May that Apple (AAPL) is “an even better business” than American Express and Coca-Cola. He made that remark after referring to American Express and Coca-Cola as “wonderful businesses.” The legendary investor added that Berkshire will continue to own the three stocks indefinitely “unless something really extraordinary happens.”
However, we learned a few months later that Buffett sold roughly $80 billion of Apple stock in the second quarter of 2024. He remained true to his word: Berkshire still owns a boatload of Apple shares. Apple is still the conglomerate’s top holding by far. But what did Buffett do with the big pile of money gained from the sale of nearly half of Berkshire’s stake in Apple?
A small portion invested in stocks
Since Buffett is one of the greatest stock-pickers of all time, it might stand to reason that he’d deploy a big chunk of the proceeds from the Apple sale to buy more stocks. However, that’s not the case.
Sure, Buffett bought a few stocks for Berkshire’s portfolio. His biggest purchase was nearly 97 million additional shares of Sirius XM Holdings. But even if we assume the maximum share price for the satellite radio operator during Q2, only around $3.7 billion was used. The total could have been significantly lower since the stock sank 27% in the quarter.
Buffett also added to Berkshire’s positions in Occidental Petroleum and Chubb in Q2. While it’s hard to determine exactly how much money was required to fund buying more shares of these companies, the numbers were in the hundreds of millions of dollars rather than billions of dollars.
It’s a similar story for the new positions Buffett and his team initiated in Q2. During the quarter, Berkshire bought around 1.04 million shares of Heico that were worth $185.4 million at the end of the quarter. The conglomerate bought a little over 690,000 shares of Ulta Beauty that were worth $266.3 million at the end of the quarter.
Berkshire spent $2.9 billion on share repurchases in the first six months of 2024 and $2.6 billion in the first quarter. Therefore, roughly $300 million was used on stock buybacks in Q2.
Where Buffett invested most of the money
Buffett likely used no more than $5 billion of the proceeds from the Apple transactions in Q2 to buy other stocks, including repurchases of Berkshire Hathaway shares. So where did the rest of the money go?
When the so-called “Oracle of Omaha” doesn’t use Berkshire’s cash to invest in stocks, he parks it in U.S. Treasury bills. At the end of Q1, Berkshire has $157.4 billion in Treasuries. Three months later, that total soared to $238.7 billion — an increase of $81.3 billion. Berkshire’s cash position excluding short-term Treasuries also increased by around $4 billion during Q2.
The totals of the amounts Berkshire made from selling Apple don’t exactly match the totals of the amounts invested in stocks and Treasuries and held in cash. That’s because Berkshire generated positive cash flow during Q2.
However, the clear conclusion is that most of the money made from selling Apple in Q2 went into Treasuries rather than stocks or anything else. Buffett might think Apple is still a better business than “wonderful” long-term holdings like American Express and Coca-Cola, but he apparently views safe-and-steady U.S. Treasuries as an even better alternative for a huge amount of Berkshire’s money.
A good lesson for other investors?
Investors who aren’t billionaires should always think carefully before making the same moves as Buffett. His objectives for Berkshire Hathaway might not fully align with your objectives.
Still, with many stock prices trading at a premium, buying Treasuries isn’t a bad idea. The yields for short-term Treasuries remain above 4.5%. This will allow your money to make money while you wait for an opportunity to buy stocks at more attractive prices.
This doesn’t mean you shouldn’t buy any stocks, though. After all, Buffett bought six stocks in Q2 (including buybacks of Berkshire). Even in high-priced markets, attractive opportunities can be found.
— Keith Speights
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Source: The Motley Fool