US stocks hit new highs! Buffett cuts Apple holdings and holds $10 trillion in cash. What warning signs does he see?

Buffett cuts Apple stocks again, cash level exceeds 10 trillion台coin

According to Investopedia, Warren Buffett's Berkshire Hathaway has once again significantly reduced its holdings of Apple stock, according to its latest financial report.

Although Apple's stock price rose more than 10% in the third quarter of this year, the value of Berkshire Hathaway's Apple holdings plummeted from $84.2 billion to $69.9 billion, indicating that about a quarter of the holdings may have been sold.

It is worth noting that this is Buffett's second significant reduction in Apple stocks this year. He had already dumped nearly half of his Apple holdings, with a total value of approximately $175 billion, in the first half of 2024.

In addition to Apple, Berkshire Hathaway also reduced its holdings in Bank of America (BofA). Reports indicate that Berkshire Hathaway began reducing its holdings in Bank of America in mid-July, reducing the value of its holdings from $41.1 billion at the end of June to $31.7 billion.

As Berkshire Hathaway continued to increase its cash holdings significantly during the dumping of stocks, the cash position on the balance sheet rose from $271.5 billion in the second quarter to $325.2 billion (over 10 trillion New Taiwan dollars), reaching a historic high, with as much as $288 billion invested in short-term US Treasury bills.

Image source: Jon's Newsletter Buffett's Berkshire Hathaway once again sold a large amount of Apple stock

Why does Buffett hold a large amount of cash?

Prominent financial media 'The Kobeissi Letter' pointed out that the amount of cash held by Berkshire Hathaway is quite astonishing, exceeding the market capitalization of most listed companies globally. For example, the market capitalization of Netflix and Bank of America are both inferior to the amount of cash held by Buffett.

The media believes that Buffett may be dropping the risk of Berkshire Hathaway's balance sheet. In the environment of the Fed launching a new round of interest rate cuts, he still chooses to invest in relatively stable US Treasury bonds instead of chasing the stock market, which is currently at historical highs.

In the past year, the S&P 500 index has gained a cumulative increase of 40%, marking the largest annual increase since 1954. On October 18th, driven by better-than-expected financial performance of Netflix and the rising trend of technology stocks, the Dow Jones and S&P indices closed at 43,275.91 and 5,864.67 points respectively, reaching new historical highs.

Buffett's move may be in line with his classic saying: 'Be fearful when others are greedy and greedy when others are fearful,' implying that there may be excessive greed in the current market.

CFRA Research analyst Cathy Seifert said that Berkshire Hathaway can be seen as a microcosm of the overall economy, and the behavior of holding a large amount of cash shows a 'defensive mindset', which may cause investors to worry about the current economic and market conditions.

Long-term investor Tom Russo, partner at Gardner Russo & Quinn, believes that Buffett wants to invest every penny in businesses that can bring advantages to Berkshire Hathaway. At the same time, he is willing to be patient and only ready to deploy ample capital when other investors are in despair or funds are limited.

Image source: ValueWalk Long-term investment partner Tom Russo of Gardner Russo & Quinn at Berkshire

Berkshire Hathaway previously heavily reduced its Apple stock holdings in May this year.

According to Forbes columnist Peter Cohan, Buffett revealed at the Berkshire Hathaway annual meeting in May that selling some Apple stocks this year would benefit Berkshire Hathaway shareholders if the US uses increased capital gains tax to fill the fiscal deficit. However, Berkshire Hathaway has significantly reduced its holdings of Apple stocks in the past three quarters.

It is worth noting that Berkshire's third-quarter operating profit fell 6% to $10.09 billion, mainly due to insurance underwriting losses, claims payments caused by Hurricane Helen, and exchange losses caused by the strong dollar.

Does the Buffett indicator indicate that the stock market is overvalued?

The warning of the market being overvalued is not only reflected in Buffett's investment behavior, but also the related important indicator, the 'Buffett Indicator,' shows the same concern.

The Nikkei Shimbun pointed out that the Buffett Index is used to determine whether the stock market is overvalued based on the ratio of total market capitalization to GDP. Currently, this index has reached twice the GDP, setting a new historical high.

So, is the US stock market currently overvalued? Some analysts believe that, in the context of globalization, the overseas profitability of US companies has significantly improved, leading to a faster increase in corporate profits than GDP. Therefore, the Buffett Indicator may be in a high-value range on a regular basis.

However, Chisato Hagano, Chief Strategist at Mitsubishi UFJ Trust and Banking, warns that despite globalization factors, current market valuations are still clearly high.

From other valuation indicators, the expected P/E ratio of the S&P 500 index has exceeded 21 times, far higher than the average level of about 18 times in the past decade. What is even more worrying is that the stock market continues to rise in the case of a sluggish manufacturing industry sentiment index, indicating that the current stock market performance may have deviated from the fundamentals.

Nevertheless, the market remains optimistic about the prospects of US stocks. Goldman Sachs has raised its year-end target price for the S&P 500 index to 6,000 points, mainly based on corporate earnings growth and robust overall economic performance.

However, Buffett's decision to significantly reduce stocks and hoard cash at this time may be indicating the risks brought about by market overoptimism.