Apple (AAPL -0.35%) is a massive position in Berkshire Hathaway's (BRK.A -0.76%) (BRK.B -0.69%) portfolio. As of this writing, the tech stock accounted for about 44% of the holding company's equity portfolio. That's even after Warren Buffett sold about $2 billion worth of shares last quarter. The total value of Berkshire's 905.5 million Apple shares is about $161.4 billion.
But there's one position on Berkshire Hathaway's balance sheet that's even bigger than its stake in Apple. And Warren Buffett is more than happy to keep adding to it, just as he did last quarter and in each of the last six quarters.
As of this writing, Berkshire's cash position, including investments in short-term Treasury bills, exceeds its position in Apple and any other investment. Here's what investors need to know.
Buffett's favorite place to stash cash
As of the end of 2023, Berkshire Hathaway held a cash position of $167.6 billion. The vast majority of that amount, $133.4 billion, is invested in short-term Treasury bills. Those are Treasury bonds that mature within 12 months.
While Berkshire's cash holdings have grown exceptionally large recently, investors shouldn't doubt Buffett's belief in the long-term potential of the stock market. He reiterates his position in the most recent letter to shareholders: "I can't remember a period since March 11, 1942 -- the date of my first stock purchase -- that I have not had a majority of my net worth in equities, U.S.-based equities. And so far, so good."
He once considered the bond market a good place for long-term investments but publicly changed his tune in 1980. That year, he wrote to shareholders: "It was a mistake to buy fifteen-year bonds, and yet we did; we made an even more serious mistake in not selling them (at losses, if necessary) when our present views began to crystallize."
Image source: The Motley Fool.
In the company's quarterly reports these days, Buffett notes, "We continue to believe that maintaining ample liquidity is paramount and we insist on safety over yield with respect to short-term investments."
For now, at least, Buffett gets the benefits of both safety and yield. Short-term Treasuries are yielding more than longer-dated bonds as markets expect the Federal Reserve to start lowering interest rates this year. But even when short-term rates begin to fall, investors shouldn't expect Buffett to change his strategy.
Why is Buffett's cash pile growing so big?
Most investors know the stock market is now hitting new all-time highs after hitting the bottom of the bear market in October 2022. It's no coincidence that Buffett went from a net buyer of stocks in 2022 to a net seller of stocks in each of the last five quarters. It's not that Buffett's selling like crazy but that he hasn't seen much in the market worth buying, especially as valuations continue to climb.
The market for complete acquisitions is even less promising. "There remain only a handful of companies in this country capable of truly moving the needle at Berkshire," Buffet wrote in his letter to shareholders. "Some we can value; some we can't. And, if we can, they have to be attractively priced."
Meanwhile, Berkshire's operations are doing well. Operating cash flow grew to $49.2 billion, with capital expenditures totaling just $19.4 billion. That leaves a lot of cash on the balance sheet.
Buffett has been using a good chunk of that cash every month to repurchase shares of Berkshire Hathaway stock, which gives remaining shareholders a greater stake in the company and everything it owns. He repurchased $9.2 billion of Berkshire shares last year.
Should you follow Buffett's lead?
Treasury bills currently offer a great way to stash cash short term. The yields on short-term Treasury bonds haven't been this high in a long time, and there are tax advantages for investing in Treasuries instead of other interest-paying financial instruments.
But if you're interested in growing your wealth long-term, you'll do well to put your money to work in the stock market. Investors shouldn't overlook that Berkshire's equity portfolio is still more than twice the size of its cash holdings. Plus, it has its own operations from wholly owned companies worth about $350 billion, according to the stock's current market cap.
Buffett's biggest challenge is finding a business to acquire or build a substantial stake in that can move the needle for Berkshire Hathaway. There are at least a couple of businesses where he's building equity stakes, but many more where he feels the companies are overvalued.
Individual investors have the luxury of managing a portfolio worth far less than Berkshire's $880 billion market cap. And you can certainly find a stock worth buying a few thousand dollars' worth of, even in today's market. And if you don't want to buy individual stocks, you can always fall back on Buffett's top investment recommendation: an S&P 500 index fund.
