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Source: Cover News

Cover News reporter Zhu Ning

On the evening of August 3rd, Beijing time, Buffett's Berkshire Hathaway released its second quarter 2024 financial report, with net profit significantly exceeding market expectations, reaching US$30.35 billion.

It is worth noting that Berkshire Hathaway has significantly increased its cash reserves, and has also significantly reduced its holdings of Apple shares, by nearly 50%. Buffett has previously stated that Apple will be the largest investment unless there are major changes.

Cash reserves continue to rise

The financial report shows that in the second quarter of 2024, the company's revenue was US$93.653 billion, compared with US$92.503 billion in the same period last year, and the market expected US$91.09 billion; net profit was US$30.35 billion (about RMB 217.315 billion), compared with US$35.912 billion in the same period last year, and the market expected US$17.786 billion. In the first half of 2024, Berkshire's total net profit reached US$43.05 billion, compared with US$71.416 billion in the same period last year.

In addition, Berkshire Hathaway seems to be hoarding cash on a large scale. As of the end of the second quarter, the company's cash reserves were US$276.9 billion (about RMB 1.98 trillion), a new high, and US$189 billion at the end of the first quarter.

At the shareholders' meeting in May this year, Buffett responded to Berkshire's huge cash reserves. He said that there are no attractive targets to allocate assets now. "We would like to spend the money, but we will not spend it unless we think that what needs to be done is of low risk and can bring us a lot of money." At that time, Buffett said bluntly that Berkshire's cash reserves may reach 200 billion US dollars in the future.

Large-scale reduction of Apple holdings

It should be noted that as of June 30, 72% of the total fair value of equity investments was concentrated in American Express, Apple, Bank of America, Chevron and Coca-Cola. In the quarter ending June 30, net sales of stocks worth US$75.5 billion (approximately RMB 540 billion) were made.

But what is shocking is that Berkshire Hathaway significantly reduced its holdings of Apple shares in the second quarter, and the number of shares held was almost "cut in half". The financial report shows that the company reduced its holdings of Apple shares in the second quarter from 789 million shares in the first quarter to about 400 million shares, a decrease of nearly 50%. In the second quarter of this year, Apple's stock price rose from $171.19 at the opening on April 1 to $210.62 at the closing on June 28.

Even if calculated based on the lowest share price of $164.075 during the period, Berkshire Hathaway cashed out more than $63 billion (about RMB 450 billion) from selling Apple shares. If calculated based on the highest share price of $220 during the period, the value of the shares sold this time is more than $85 billion (about RMB 600 billion).

In terms of stock price, Apple's stock price has risen by 14% so far this year, with a total market value of US$3.35 trillion, making it the most valuable company in the US stock market.

As of now, Berkshire Hathaway still holds approximately 2.6% of Apple's shares, which is worth approximately US$88 billion based on the closing price of US$219.86 on August 2 local time.

Previously, Berkshire reduced its holdings of Apple shares by 13% in the first quarter. At the Berkshire annual meeting in May, Buffett responded that the reduction of Apple shares was for tax reasons after the investment obtained considerable returns, rather than based on long-term judgments on the stock. He also said that by the end of 2024, Apple is very likely to still be Berkshire's largest holding. Buffett said that unless there is a major change, Apple will be the largest investment.

Bank of America shares enter positive territory

But it continues to be sold off

It is worth mentioning that Berkshire has methodically reduced its position in Bank of America in recent times, which is its second largest holding after Apple.

Regulatory filings show that Berkshire Hathaway sold about $3.8 billion worth of Bank of America shares in the 12 trading days ending Thursday (August 1).

The reporter noticed that Bank of America's stock has been rising in recent months, rising 75% from its low point at the end of October last year to when Berkshire began selling in July.

As for the process of Buffett's purchase of Bank of America, Buffett began buying Bank of America in 2011, and then Bank of America became Berkshire Hathaway's second largest holding, second only to Apple.

Buffett has also praised Bank of America's management many times. When talking about holding Bank of America shares, he once said: "I took the initiative to join many years ago, and they made a very good deal for us. I like Brian Moynihan (CEO of Bank of America) very much, and I don't want to sell it."

Earlier, Berkshire Hathaway disclosed its actions to reduce its holdings in Bank of America on July 19, July 24 and July 29 respectively.

In 2022, Berkshire Hathaway exited several long-held bank stocks, including JPMorgan Chase, Goldman Sachs, Wells Fargo and U.S. Bancorp, but not Bank of America.

Buffett's share reduction this year took place the day after Bank of America released its second-quarter earnings report. On July 16, local time, Bank of America released its second-quarter earnings report. During the reporting period, the company achieved revenue of $51.195 billion and net profit of $13.571 billion, exceeding market expectations. However, net interest income, one of the bank's largest sources of income, fell to $13.7 billion, falling short of market expectations.

Some market analysts believe that the Fed's upcoming interest rate cuts may be one of the reasons why Buffett reduced his holdings in Bank of America. The profitability of the banking industry depends largely on the net interest margin, which is the difference between the bank's loan interest rate and the deposit interest rate. Generally speaking, a higher interest rate environment helps to expand the net interest margin, thereby improving the profitability of banks. If the market expects the Fed to cut interest rates soon, this may lead to a narrowing of the net interest margin of the banking industry, which will have a negative impact on the profitability of banks.