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Why Warren Buffett’s billions in cash at Berkshire Hathaway is a bearish stock market signal

In Business
May 05, 2024

Queue the bears.

Berkshire Hathaway’s (BRK-A, BRK-B) cash pile hit another record high in the first quarter of $189 billion, the industrial giant said in its earnings release on Saturday.

That massive cash war chest will likely reach $200 billion by the end of the current quarter, Buffett told shareholders at a packed CHI Health Center today.

Such a hoard of greenbacks signals Buffett is “bearish” on the stock market right now, according to one veteran value investor.

“Buffett is bearish on the stock market. He shows this by growing his massive cash position to $200 billion, selling Apple (AAPL) shares and saying that he doesn’t see bargains,” Smead Capital Management CIO and long-time Buffett watcher Bill Smead told me on the grounds of the Woodstock of Capitalism.

Berkshire’s decision to reduce its stake in Apple and boost the company’s cash position is a move that Buffett says makes sense given the current macroeconomic environment.

“I don’t think anyone sitting at this table has any idea how to use it effectively, and therefore we don’t use it,” Buffett said in response to a shareholder question of why Berkshire isn’t putting the cash reserve to work.

“As the world gets more sophisticated, complicated and intertwined, more can go wrong” and you want to be able to “act when that happens,” Buffett added.

The bears have some meat to feast on, compliments of Buffett.

Berkshire reduced its position in Apple by about 13% during the first three months of the year, marking the second quarter in a row that the conglomerate reduced its stake in the iPhone maker.

As of March 31, Apple accounted for about 40% of Berkshire’s vast stock portfolio, worth a total of $135.4 billion.

Berkshire reduced its position in Apple as the tech giant has struggled in recent quarters and valuation on the stock remains elevated. The stock fell about 10% during the first three months of the year, weighing on Berkshire’s quarterly results.

While some initially looked at Buffett’s decision to reduce the Apple stake as a sign that his stance on the tech beast has changed, one analyst told Yahoo Finance that “taking a little off the top doesn’t hurt.”

“This does not concern us all that much because Apple was such a large position in the 13-F portfolio at the end of 2023, so anything to lessen that exposure is good from a diversification perspective,” Morningstar analyst Greggory Warren told me at the meeting.

The legendary investor was also quick to reassure shareholders as to his confidence in Apple.

“At the end of the year, I would think it’s extremely likely that Apple is the largest common stock holding we have now,” Buffett told a packed house, which included Apple CEO Tim Cook.

Harold and Caroline Ernst of St. Louis chat with fellow shareholders as they wait for the Berkshire Hathaway annual meeting to begin on Saturday, May 4, 2024, in Omaha, Neb. (AP Photo/Rebecca S. Gratz)

Harold and Caroline Ernst of St. Louis chat with fellow shareholders as they wait for the Berkshire Hathaway annual meeting to begin on Saturday, May 4, 2024, in Omaha, Neb. (AP Photo/Rebecca S. Gratz) (ASSOCIATED PRESS)

Buffett compared Apple to two of Berkshire’s most well-known, top holdings: Coca-Cola (KO) and American Express (AXP). While he called Coca-Cola and American Express “wonderful businesses,” he noted Apple was an “even better business.”

While Buffett remains optimistic on Apple, the business does face short-term headwinds.

Weakness in China has been front and center for Apple investors as it loses market share to domestic players. A more cautious US consumer hasn’t aided investor sentiment, either.

“It’s easy to blame the overall consumer environment but there’s also a market share dynamic that’s occurring with Huawei and others becoming extremely competitive,” Ariel Investments emerging markets equities senior vice president Christine Phillpotts told me at Berkshire’s annual meeting.

It’s a trend that Phillpotts says will likely accelerate as domestic players continue to “increase the value proposition.”

Apple shares have declined 4.8% since the start of the year despite coming AI announcements, far underperforming the S&P 500’s 8% gain.

Buffett’s cash hoard hints other stocks may follow Apple’s lead lower as the year treks along.

Curious on what Apple is up against in terms of AI competition? Yahoo Finance executive editor Brian Sozzi goes inside Amazon’s AI plans with AWS CEO Adam Selipsky in a new episode of the Opening Bid podcast below.

Seana Smith is an anchor at Yahoo Finance. Follow Smith on Twitter @SeanaNSmith. Tips on deals, mergers, activist situations, or anything else? Email seanasmith@yahooinc.com.

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