news

Tencent News "Periscope"

Author: Ji Zhenyu

Editor Liu Peng

Reduced holdings in the second quarterappleAfter holding nearly 50% of the shares, the total cash held by Buffett's Berkshire Hathaway reached a record high of $277 billion. But how to find the next high-quality target has become a new problem for Buffett.

In recent years, the "God of Stocks" has repeatedly emphasized in public that it is difficult to find high-quality targets that meet his value investment standards in the market. Berkshire Hathaway rarely makes large-scale investments in the United States. The most recent investment that attracted attention wasOccidental Petroleum, first invested $10 billion in non-voting perpetual preferred shares of Occidental Petroleum in 2019, and publicly acquired Occidental Petroleum common stock by 2022. Currently, its shareholding in Occidental Petroleum has exceeded 25%. This is another typical Buffett-style operation. He is optimistic about a company, becomes one of the company's major institutional shareholders through continuous shareholding and holds it for a long time.

However, Buffett's large-scale investment move, which has attracted much attention from the market, has not yet produced significant returns on investment. Since 2022, Occidental Petroleum's stock price has basically hovered around US$60 per share and has not outperformed the broader market index.

As high-quality stocks are hard to find in the U.S. stock market, Buffett has begun to turn his attention to overseas markets. Another operation that has attracted much attention in recent years is his investment in the Japanese market.

From 2019 to 2020,BerkshireBuffett raised $6 billion by issuing bonds in the Japanese market and then invested in the five largest Japanese trading companies. However, in the global market turmoil in early August, the share prices of the five trading companies in which Buffett invested suffered a sharp drop, with Marubeni and Mitsui & Co. falling by more than 30%, exceeding the overall decline of the market. Due to the interest rate hike by the Bank of Japan, investors are worried that the appreciation of the yen will have a negative impact on the performance of Japanese trading companies. According to estimates, this round of collapse of the Japanese market caused the market value loss of Buffett's Japanese-related stocks to exceed $6.7 billion.

With high-quality targets hard to find in the domestic market and overseas markets turbulent, holding a large proportion of cash may be Buffett's best answer to the current market situation.

Buffett sells off Apple shares on a large scale, Apple buys back to "cover retreat"

The second-quarter financial report of Berkshire Hathaway, owned by Buffett, showed a net sale of stocks worth $75.5 billion, with the largest reduction in Apple, its largest holding, from a total market value of $135.4 billion in the first quarter to $84.2 billion. Taking into account the increase in Apple's stock price in the second quarter, Buffett reduced his holdings in Apple stock by nearly 50% in the second quarter.

Before significantly reducing its holdings in Apple stock, Apple was Berkshire's largest holding, accounting for more than 40% of the market value of all stocks held. After the large-scale reduction, the proportion of Apple stock held by Berkshire in the total market value of all stocks held also fell to 30%.

After a large-scale sell-off, Berkshire Hathaway's total cash holdings in the second quarter also reached a record high of US$277 billion.

In fact, Buffett had already begun to reduce his holdings in Apple as early as the first quarter of this year, and the reduction ratio in that quarter had reached more than 13%. At that time, Buffett explained this at the shareholders' meeting in May as a result of tax considerations. Buffett emphasized that if capital gains taxes continue to increase in the future, then reducing part of Apple's holdings will be beneficial to Berkshire shareholders in the long run.

After this round of substantial sell-offs, the market value of Buffett's Apple shares has basically returned to the level of the third quarter of 2020.

At the Berkshire shareholders meeting in May this year, Apple CEO Tim Cook also came to the meeting as usual. As one of Apple's largest institutional shareholders, Apple's head naturally had to go to the scene in person to show his support.

Looking back, Buffett's reduction in Apple's holdings must have been communicated with Apple's management in advance. Perhaps at the annual shareholders' meeting in May, Cook already knew about Buffett's decision to significantly reduce Apple's holdings in this quarter.

According to the data, Apple also increased its stock repurchase efforts in the second quarter, with a total repurchase amount of US$26.52 billion. Since the beginning of this year, Apple's total repurchase amount has reached nearly US$50 billion, which to a certain extent cooperated with Buffett's large-scale reduction of Apple shares and also ensured the smooth transition of the stock price during this process. In the second quarter, Apple's stock price rose by 27%, and since the beginning of this year, Apple's stock price has risen by 14.4%. It can be said that the stock price has not been affected by the selling of major shareholders.

Reducing holdings perfectly avoided a round of adjustments in technology stocks. Buffett practices "I am fearful when others are greedy"

As for the reason for the substantial reduction in Apple holdings in the second quarter, "Oracle of Omaha" Buffett did not give a clear explanation to the public, but from some of his past public statements and actions, we can roughly summarize some possible reasons behind it.

First of all, Buffett began to build a position in Apple in 2016 and Apple has now become Berkshire's largest holding. Apple's stock price has continued to rise during this period, which has brought Buffett huge returns on investment. In the first quarter, Buffett made it clear that part of the reduction was due to capital gains tax considerations, and that the reduction was also for the long-term interests of Berkshire shareholders, because if the capital gains tax rate rises further in the future, the huge investment income brought by Apple will also face more tax impacts.

However, the above only explains why Apple's holdings were reduced, but it still cannot explain why the holdings were reduced so quickly and significantly in the second quarter. Considering the market trends, perhaps the "God of Stocks" has smelled some different market signs.

From the comparison between the changes in Berkshire's stock holdings and market trends over the past year, it is obvious that as the US stock market represented by the S&P 500 index continues to rise, Buffett's stock holdings have been continuously declining, from more than 70% in the second quarter of 2023 to about 50% in the second quarter of 2024. In fact, in the past five years, Buffett's stock position has never been less than 60%.

Almost at the same time when Berkshire released its second quarter financial report, the U.S. stock market experienced a sharp correction in early August. Affected by the sudden interest rate hike announced by the Bank of Japan and the market's concerns about the U.S. economic recession, the global stock market was shaken. In the U.S. stock market, Apple,Nvidia、Google、AmazonHeavyweight stocks, mainly those of technology giants, have generally suffered heavy losses. Buffett has currently adjusted his positions to a lower level, which has to some extent avoided this round of short-term and rapid market turmoil.

Of course, from Buffett's value investment perspective, timing is not an area he is good at or more focused on, but reducing stock positions to the lowest level in recent years does to a certain extent reflect the "God of Stocks"'s stage-by-stage views on the U.S. stock market. Perhaps the stage-by-stage top of the U.S. stock market has been formed or is being formed.

In the past five years, the U.S. stock market has generally shown an upward trend, with the S&P 500 index rising by more than 80%. In recent years, driven by the concept of generative artificial intelligence, companies such as Nvidia, Apple, Google,MicrosoftTechnology giants represented by etc. have ushered in another wave of strong growth, which also drives the entire market upward.

Just when investors in the entire market were immersed in joy, Buffett quietly "retreated", which may just confirm his famous saying "I am fearful when others are greedy."

After continuously and significantly reducing its stock positions, Buffett's Berkshire Hathaway has held a record $277 billion in cash, and its holdings of short-term U.S. Treasury bonds with a term of less than one year have reached $234.6 billion, exceeding the $195.3 billion in short-term Treasury bonds held by the Federal Reserve, making it the single institution with the largest amount of U.S. short-term Treasury bonds in the world.

How to find the next high-quality target has become a new challenge that Buffett will face next. In fact, in recent years, the "God of Stocks" has repeatedly emphasized in public, including at this year's shareholders' meeting, that it is currently difficult to find high-quality targets in the market that meet Berkshire's value investment standards. In recent years, Buffett has rarely made large-scale investments in the United States. The most recent high-profile investment was in Occidental Petroleum. First, in 2019, he invested $10 billion in Occidental Petroleum's non-voting perpetual preferred shares, and in 2022 he began to publicly acquire Occidental Petroleum's common stock. Currently, Berkshire's shareholding in Occidental Petroleum has exceeded 25%. This is another typical Buffett-style operation. He is optimistic about a company, becomes one of the company's major institutional shareholders through continuous share purchases, and holds it for a long time.

However, Buffett's large-scale investment move, which has attracted much attention from the market, has not yet produced significant returns on investment. Since 2022, Occidental Petroleum's stock price has basically hovered around US$60 per share, and has not even outperformed the broader market index.

As high-quality stocks are hard to find in the U.S. stock market, Buffett has begun to turn his attention to overseas markets. Another operation by the "Oracle of Omaha" that has attracted much attention in recent years is his investment in the Japanese market.

From 2019 to 2020, Berkshire raised $6 billion through bond issuance in the Japanese market, and then invested in the five largest Japanese trading companies. However, in this round of global market turmoil in early August, the share prices of the five major trading companies invested by Buffett suffered a sharp drop, among which Marubeni and Mitsui & Co. fell by more than 30%, exceeding the overall decline of the market. Due to the interest rate hike by the Bank of Japan, investors are worried that the appreciation of the yen will have a negative impact on the performance of Japanese trading companies. According to estimates, this round of collapse of the Japanese market caused the market value loss of Buffett's Japanese-related stocks to exceed $6.7 billion.