Berkshire Hathaway recently provided significant insights into its operations by releasing its year-end 2024 earnings report, CEO Warren Buffett’s annual letter to shareholders, and details of its fourth-quarter stock portfolio activity. Currently, Buffett and his team appear to be adopting a cautious investment strategy. Although Buffett emphasized in his annual letter that Berkshire will continue to focus its capital on equities, three key observations emerge from the latest updates.
Firstly, Berkshire Hathaway has been selling more stocks than it has been purchasing. This trend has been noticeable for a while and intensified in 2024, as the company sold a substantial portion of its holdings in Apple and Bank of America, which were its largest stock positions at the beginning of the year. In the fourth quarter, this strategy persisted, although Berkshire found some investment opportunities by initiating a new position in Constellation Brands and adding to a few existing holdings. Nonetheless, it sold shares in 12 different stocks, including a significant portion of its investment in Bank of America and approximately three-fourths of its Citigroup shares. These actions suggest that Buffett is becoming increasingly cautious about the banking industry and indicates difficulties in identifying attractive investment opportunities.
Secondly, despite Berkshire Hathaway’s history of significant buybacks, no shares were repurchased in the fourth quarter of 2024. This marked the second consecutive quarter without buybacks, attributed to Berkshire’s stock trading near its all-time high, signaling that Buffett might not find the current valuation attractive.
Thirdly, Berkshire’s cash reserves reached an all-time high, amounting to $334.2 billion by the end of 2024, an increase of $9 billion from the third quarter. Much of these funds are invested in short-term Treasury securities, yielding over $10 billion annually in interest income. Berkshire’s cash holdings now surpass the market capitalizations of large corporations such as Bank of America, Chevron, and Coca-Cola. Although Buffett acknowledged the extraordinary cash position in his annual letter, he provided no specific explanation for the accumulation.
Overall, these developments reflect Berkshire’s cautious approach. While Buffett did not explicitly suggest that stocks are overvalued in his letter, he noted the challenge of finding compelling investment opportunities. Berkshire’s cautious stance is likely to be a topic of discussion during its annual shareholder meeting in May, which will feature a Q&A with Buffett and other top leaders, potentially offering further insights into current market perspectives.