Warren Buffett, the world’s most famous investor, the “Oracle of Omaha”, made markets scratch their heads.

While everyone was still celebrating the roaring power of the US economy and record-breaking stock market highs, his investment conglomerate Berkshire Hathaway (BRK) was a net seller of shares, accumulating a cash pile of more than $325 billion (Q3/24). Idle cash, cash not invested, earning just daily interest on money-market operations.

The stock of BRK was seemingly rewarded for not investing: It has outperformed the S&P500 (the US index of the most relevant corporations) by a wide margin this year. Despite the fact that Buffett had sold down two-thirds of his investment in Apple, from $174bn to $69bn.

Note that Apple, despite its moribund sales in China, is still a highly profitable enterprise, with a net income of $14.7bn in Q3/24. Its shares are up 25 per cent since January. It is one of the Magnificent Seven, a major mover of the S&P500. It’s hard to tell what shocked observers more: the cash pile, or BHK’s departure from Apple. What added to the palpable sense of alarm was BHKs reluctance to buy back its own shares. Does Buffett think his own shares have become too expensive to buy too?

What was Buffett and his investment lieutenants thinking? Scrutinising an oracle is prone to grave misunderstandings. The sayings of the witches in Macbeth became only clear with hindsight. In the case of Buffett, the interpretations offered by market pundits and investment gurus were similarly confused. The financial newspaper Barron’s suspected caution ahead of the US elections. Both candidates came with different risks for the BHK portfolio of public and private companies.

Worth noting, that Buffett –in the past a fervent supporter of the Democrats’ cause – had flatly refused to endorse any of the two candidates this time. Was he afraid of a revengeful Trump and his acolytes, as some suggested? Or a cobbler at 94 sticking to his trade? For BHK investors who include Buffett himself (16 per cent), political posturing will not add to shareholder value. For the nonagenarian, the success of BHK is his legacy. He certainly didn’t need a shitstorm on the last stretch of his life.

BHK, at the time of writing, has reached a market cap of $958 billion. This valuation exceeds the ‘book value’ of its core assets by a factor of 1.52. (‘Book value’ in US accounting differs from stated total assets, which are higher). The total is more valuable than its parts, the market seems to believe.

Investors participate in Buffet’s investment success only with the rising value of BHK’s shares. No dividend was ever paid, in almost 60 years. Share buybacks are a relatively recent maneuver to boost shareholder value, which Buffett views as the mathematical equivalent of dividends. That the sage, bargain hunter Buffett stopped buybacks lately could mean that, for him, BHK is not cheap enough to justify buying it.

It’s hard to tell what shocked observers more: the cash pile, or BHK’s departure from Apple- Andreas Weitzer

BHK has two forms of shareholder participation: class A and class B shares. The original A shares have reached over time the astronomical value of $666,684.00 for one, single stock – clearly out of reach for most retail investors. In the 1990s, B shares were therefore introduced, with a denomination 1,500 times smaller. At the times of writing, B shares traded at $445.06. This ratio is not always maintained in the market. Sometimes A shares are a tad more valuable, probably because they come with higher voting power. They can be freely converted into B shares, but not vice versa. Right now, in the afterglow of the US presidential elections,

B shares are slightly more expensive. Perhaps because retail investors believe that another Trump reign will be net positive for the conglomerate. BHK’s portfolio does not only comprise stock holdings in publicly quoted stock, the share of which is already dwarfed by its idle cash position. Most of Buffett’s investments are private – companies owned outright. This includes BH Energy, an electricity producer and retailer and a pipeline transporter of natural gas; BNSF, a large cargo train company; and the largest insurance and re-insurance business in the US, with assets totalling $950 billion.

This insurance business is at the core of BHK’s investment strategy. Buffett built his portfolio financed by the loss reserves of his insurance companies. It is a sort of internal credit for all investments, amounting to almost $200bn. And then there’s of course the operational profit, which came in at $10 billion last quarter, slightly lower than in the previous quarter ($11,6bn) and in 3Q/23. The recent hurricane payouts and lower margins in car insurance may have made Buffett more cautious.

There are theories abound why exactly the Apple shares were so heavily reduced. Some argue that Buffett, other than his late partner, Charlie Munger, was never a great fan of big tech like Apple. It explains why he invested late in the cycle. Others argue that there was a certain urgency as a Harris win might have enlarged the tax bill for the share disposal. With a $20 billion corporation tax bill for the sales, it still makes Buffett the tax payer of the year. Buffett was at pains to explain that the Apple investment reduction is not a verdict on Apple’s financial prospects. He highlighted that at $69 billion, it was still his largest stock holding (down from $174bn).

The last time I looked, the total portfolio of public stock at BHK was $267bn. Apple was by far the largest holding. For someone as cautious and risk averse as Buffett, this must have been too many eggs in one basket.

The average price/earnings ratio of the companies Buffett holds, sometimes for half a century, is 19 (BHK’s PE is 23.07). He always invested in well-established, mature companies, like consumer goods and banks (BoA was also reduced in 2024). Apple, with a PE of 34, was in this respect an outlier. For someone like Buffett who always looks out for a bargain, this didn’t look like one. But the chances are, there will not be any bargains around any time soon. Big-pocketed asset managers and private equity funds, speculating with the money of others with a focused eye on fee income, drove valuations of possible targets over recent years to levels which are unacceptable to Buffett.

The last time he struck gold was when he bailed out Goldman Sachs, the investment bank, in the financial crisis; helped oil company Occidental for a hefty fee to finance a takeover of peer Anadarko; or bought into Chevron when the oil price suffered in 2020. I still admire his move into Japan, when he swooped on Japan’s big trading houses while nobody was looking for a Japan investment. Such opportunities are rare and may not repeat again in Buffett’s lifetime. Chances are that the cash pile amassed recently was in preparation for his inheritance, to finance his exit from BHK.

Whatever the true reason for him sitting out further investments, for us, retail investors, it is a reminder that we live in risky times and what goes up may soon come down.

I have reduced my Apple holdings twice over the years, keeping them in proportion.

Andreas Weitzer is an independent journalist based in Malta.