Warren Buffett, the legendary investor and CEO of Berkshire Hathaway, has marked three consecutive years as a net seller of stocks. This trend was highlighted in the company’s third-quarter earnings report released on October 7, 2023, revealing a significant shift in investment strategy as Buffett prepares to step down by the end of the year.
During the latest period, Berkshire Hathaway sold a total of $12.5 billion in stocks while purchasing $6.4 billion, resulting in the twelfth straight quarter of net selling. The company’s cash reserves have swelled to a record high of $382 billion, underscoring a cautious approach towards stock investments. With operating earnings climbing by 34%, Buffett has refrained from buying back stock for the fifth consecutive quarter. A detailed regulatory filing regarding specific stock transactions is expected later this month.
As Berkshire Hathaway’s stock portfolio has contracted, funds have been increasingly redirected towards Treasury debt. Despite this shift, recent declines in short-term interest rates have led to a 13% drop in net investment income, totaling $3.2 billion for the third quarter. This conservative stance on stock acquisitions began in 2022, coinciding with the Federal Reserve’s aggressive interest rate hikes aimed at controlling inflation.
Buffett’s reluctance to engage in market activities has persisted even in the face of significant market fluctuations. For instance, despite the market selloff in April following President Donald Trump’s announcement of tariffs, Buffett remained on the sidelines, netting a $3 billion stock sale in the second quarter. Markets rebounded swiftly, reaching new heights shortly thereafter, particularly in AI-related sectors. In stark contrast, Berkshire Hathaway shares have dropped 12% since May, when Buffett announced his plans to hand over the CEO role to Greg Abel.
While Buffett is set to remain as chairman, he has adopted a more passive role in preparation for Abel’s leadership. Nevertheless, Berkshire Hathaway made headlines last month with its agreement to acquire the chemicals division of Occidental Petroleum for nearly $10 billion. This acquisition is expected to enhance Berkshire’s nearly 30% ownership stake in Occidental, marking a significant move as Buffett’s tenure nears its end.
The October 2 deal was notable not only for its size but also because it was the first announcement credited to Abel without mentioning Buffett by name. Doug Leggate, an energy analyst at Wolfe Research, commented on the acquisition, stating, “It’s genius. It’s certainly a win-plus for Berkshire because it also helps the company that they own 30% of. It’s completely self-serving, it’s logical, and—not in any nefarious way—definitely helpful.”
As the transition in leadership approaches, the future direction of Berkshire Hathaway under Greg Abel’s management remains a critical point of interest for investors and market analysts alike. With Buffett’s legacy and investment strategies shaping the company for decades, the upcoming changes may signal a new chapter for this iconic conglomerate.
