Warren Buffett is one of the most well-known investors in the world. The billionaire CEO of Berkshire Hathaway has an enviable track record of outperforming the S&P 500 index and is fond of pithy, quotable sayings that the average investor can relate to. As a result, his investment moves are closely tracked — particularly the amount of cash that he holds in his portfolio.
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As of Q3 2024, Berkshire Hathaway held a whopping $325.2 billion in cash and equivalents, up from $276.9 billion at the end of Q2 2024. What does it mean when one of the world’s most successful investors is sitting on such a giant pile of cash, and how should investors react? Here are some of the potential reasons for Buffett’s actions.
There’s Nothing Available for Him To Buy
Buffett famously only buys quality companies at good prices. With the stock market at record highs, both in terms of absolute price and valuation, it’s likely that Buffett can’t find any stocks to buy at a good value. The world’s most famous investor might be waiting for a market correction or even a bear market before he can find companies available at cheap prices once again.
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He’s Taking His Tax Hit Now, Before Rates Rise
As a successful investor, Buffett has generated huge capital gains for Berkshire Hathaway. This is particularly true in the case of Apple, which Buffett began buying in 2016, somewhere in the mid-$20s per share. As of Jan. 3, 2025, Apple closed at $243.36. This means Buffett made roughly 10x his money on his earliest purchases and generated substantial gains on his other buys, as well.
But sooner or later, all investors with profits must pay the piper, and Buffett is no different. And as Buffett believes that the government will eventually cover its deficits with higher taxes, rather than reduced spending, he has a desire to realize his gains before capital gains taxes rise, according to The Economist.
Shares Are Being Called Away
As part of his investment strategy, Warren Buffett often writes covered calls on his positions. This earns him a cash premium in exchange for giving another investor the right to buy away Buffett’s stock shares at a higher price. If stock prices rise and Buffett’s shares get called away, his cash pile increases.
In a rising stock market, more and more shares may be getting called away, translating to a higher cash balance for Buffett.
Buffett Is Merely Taking Profits
Buffett is famous for saying that his favorite holding period is “forever,” but in reality, he’s not afraid of trimming positions that grow too large or taking profits in companies that have posted sharp gains. Apple, for example, is known as being one of Buffett’s favorite stocks, yet in recent quarters, he has sold millions of shares, amounting to two-thirds of his biggest position.
Whether this is due to profit taking, covered call writing or a loss of faith in Apple by Buffett is anyone’s guess. It’s worth noting, however, that Buffett has been outspoken about his belief that stocks are trading above their fair value. Historically, in those scenarios, Buffett has been a seller, not a buyer.
The Bottom Line for Individual Investors
It’s rarely a good idea to try to mimic the trading patterns of a professional investor.
For one thing, you’ll never really know the reasoning behind the moves of professional investors, and they may not apply to you. Stocks may be bought and sold for tax reasons, as part of a hedging strategy or for any number of reasons that may not necessarily mean that stock has fallen out of favor.
And as professional investors are only required to report their trades every quarter, it can be hard, if not impossible, for individuals to get timely investment insights. But it’s certainly a general data point you can incorporate to your own investment strategy when experts like Buffett seem to be cautious — for whatever reason — about the stock market in general.
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This article originally appeared on GOBankingRates.com: Warren Buffett Has a Record Amount of Cash — What Does It Mean for Your Portfolio?
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