Buffett’s Berkshire moves back in line with the S&P 500

Berkshire Hathaway just erased nearly two-thirds of its lag behind the S&P 500 last week, climbing 4.5% as investors dumped AI names and circled back to companies that actually make money.

The rally came after a strong third-quarter earnings report dropped over the weekend, while the Nasdaq cratered 3%, its largest weekly fall since April.

The renewed interest in Warren Buffett’s company came at a time when markets started worrying that AI plays are too expensive and the U.S. economy might be weakening.

According to Barron’s, the rally in Berkshire’s stocks cut its underperformance versus the S&P 500 to 4.3 percentage points from 12.2 points as of October 29.

Berkshire’s operating income surged by 34% to nearly $13.5 billion in Q3, driven mainly by a 200% increase in profit from insurance underwriting.

Buffett holds the buyback, piles up record cash

Despite the strong quarter, Warren didn’t greenlight any stock buybacks, meaning he still doesn’t see Berkshire Hathaway shares as cheap, even after months of trading well below their May highs.

With no cash spent on repurchasing its own shares, and with the company selling off more stocks than it bought, Berkshire’s total cash balance reached $381.7 billion at the end of September.

That’s a 10.9% increase from June, and when you subtract BNSF Railway’s cash and adjust for the timing of some Treasury bill purchases, the pile still sits at $354.3 billion, up 4.3% over the same stretch.

Warren might also be preparing to step away. On Monday, November 10, the company is scheduled to release a press statement that will include a message from him about philanthropy, Berkshire, and “other matters that shareholders may find to be of interest.” That’s what the company told The Wall Street Journal and confirmed in a news release last week.

No one’s calling it a farewell, but the writing’s there. If Warren exits now, he’d be leaving with the company flush with cash, outperforming again, and cutting its reliance on overhyped equities.

Apple, BofA both trimmed as portfolio reshuffle continues

Next Friday, investors will get a full breakdown of Berkshire’s Q3 portfolio, but there are already signs Warren and his team have been selling down major holdings.

Last Saturday’s 10-Q filing showed a $1.2 billion drop in cost basis for the company’s consumer stock category, which includes Apple. Apple had a 24% rally during the quarter, making it a prime candidate to cash in profits.

Despite still being Berkshire Hathaway’s largest equity holding, now worth $75.2 billion, the company has cut the Apple position by 69% over the past two years.

Barron’s broke down the $1.2 billion decline, dividing it by Apple’s per-share cost basis of $35. That math points to a sale of about 35 million shares, which would’ve brought in around $8 billion, based on Apple’s average Q3 price of $230 per share.

Apple wasn’t the only one getting cut. The rest of Apple’s reported $12.4 billion in Q3 equity sales leaves $4.4 billion possibly tied to another name: Bank of America. Warren has been unloading that too.

Since the beginning of 2024, Berkshire has cut its Bank of America stake by 40%, though it remains the company’s third largest public equity holding at $32.2 billion.

Berkshire’s publicly disclosed holdings in the U.S., Japan, and Hong Kong are still substantial.

Two Japanese companies, Itochu and Mitsubishi, are exceptions. Those are based on data from March 17 and August 28, respectively, with Japanese share prices converted to U.S. dollars.

Meanwhile, State Street is sticking with the AI trade, even as tech investors take profits. Anna Paglia, the company’s Chief Business Officer, told CNBC’s “ETF Edge” last week that momentum isn’t dead. “How would you not want to participate in the growth of AI technology?” she said. “Everybody has been waiting for the cycle to change from growth to value. I don’t think it’s happening just yet because of the momentum.”

Anna added that “the rebalancing trade is not going to happen until we see a signal from the market indicating a slowdown in these big trends.”

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