At the end of this year, Warren Buffett is finally retiring after leading Berkshire Hathaway (BRK.A 1.34%)(BRK.B 1.76%) for more than six decades. In that time, Berkshire Hathaway has been one of the stock market's best-performing stocks, and its moves have attracted much investor interest, hoping to mimic its success in some sense.
In the third quarter, Buffett and Berkshire Hathaway made some notable moves that leave the next wave of leadership with a record-breaking cash pile of over $380 billion. We can't fully predict Berkshire Hathaway's direction post-Buffett, but its incoming CEO, Greg Abel, will have plenty of resources at his disposal.
Image source: Getty Images.
Trimming its largest holding
For the past couple of years, Berkshire Hathaway has sold considerably more shares than it has bought. In the third quarter, it trimmed its stake in Apple (AAPL +0.17%) by around 15%. The iPhone maker is still Berkshire Hathaway's largest holding, accounting for 20.9% of its stock portfolio (just over 238 million shares), but it's a much smaller stake than it has historically been.
There are two key reasons why Berkshire Hathaway and Buffett made these moves. First, the company likely wants to take profits from its Apple stake while corporate tax rates are in its favor. There's no guarantee that corporate tax rates will change, but if they do, it's unlikely to be in corporations' favor.
Second, Apple's stock has become fairly expensive compared to its expected earnings growth. Its forward price-to-earnings ratio is nearly 34, the third-highest of the "Magnificent Seven" stocks. Berkshire Hathaway likely thinks the profit from Apple is better put elsewhere.
NYSE: BRK.B
Key Data Points
Where Berkshire Hathaway is putting money instead
The main place Berkshire Hathaway has been putting its money is in U.S. Treasury bills (T-bills), which are short-term government debt backed by the U.S. Treasury. At the end of the third quarter, Berkshire Hathaway held around $305 billion in T-bills. That means it purchased around $19 billion of them during the quarter.
3 Month Treasury Rate data by YCharts.
With seemingly limited big-buck investment opportunities right now, stashing cash in T-bills makes sense because it allows Berkshire Hathaway to earn guaranteed income without taking on any risks. Right now, T-bills are paying out around 3.66%, meaning $305 billion worth would pay out around $11 billion annually. That's pure profit with virtually no effort required.
Since the cash isn't locked into longer-term T-bills, Berkshire Hathaway has plenty of liquidity and can access its cash fairly quickly if an opportunity were to become available.
