Buffett Cuts Apple Stake, Berkshire Cash at $189B, Exits Paramount

Key Takeaway

• Buffett trims Apple stake to $135.4 billion, still expresses strong confidence; Berkshire's cash reserves hit a record $189 billion.
• Berkshire Hathaway's operating earnings rise 39% to $11.2 billion, despite BNSF's earnings decline and PacifiCorp's wildfire losses.
• Buffett endorses successors Greg Abel and Ajit Jain, exits Paramount Global at a loss, reaffirming faith in core investments like Apple.

Berkshire Adjusts Apple Stake

Warren Buffett, the Chairman and CEO of Berkshire Hathaway, disclosed a significant reduction in the company's investment in Apple Inc. during the first quarter, with the holding value decreasing to $135.4 billion from $174.3 billion at the year's end. Despite this reduction, Buffett expressed strong confidence in Apple, comparing it favorably to other major investments like American Express and Coca-Cola, and suggesting that, barring dramatic changes, Apple would remain Berkshire's largest investment. He attributed the sale partly to tax considerations, following the stock's substantial gains. Apple's challenges, including a $2 billion antitrust fine and slumping sales in China, were noted alongside its stock's approximately 5% decline this year.

Berkshire's Cash Reserves Grow

The sale of Apple shares contributed to Berkshire Hathaway's cash reserves swelling to a record $189 billion by the end of March. Buffett indicated comfort with this growing cash position amidst uncertain market conditions, including unclear future rate cuts, persistent inflation, and geopolitical risks. The company's interest income also saw a significant increase, benefiting from higher interest rates, earning $1.9 billion compared to $1.1 billion in the same quarter the previous year. Despite the ample cash reserves, Buffett mentioned the difficulty in finding acquisitions that would significantly impact Berkshire's operations.

Earnings and Operations Insight

Berkshire Hathaway reported a 39% increase in operating earnings, totaling $11.2 billion, buoyed by improved results in its insurance businesses, including a notable performance by auto-insurer Geico. However, Berkshire's railroad unit, BNSF, experienced an 8.3% decline in earnings, attributed to changes in business mix and lower fuel surcharge revenues. Additionally, Berkshire's PacifiCorp faced estimated pre-tax probable losses of $2.4 billion from wildfires, with significant liability claims still pending.

Leadership and Investments

The meeting also touched on succession plans, with Buffett endorsing Greg Abel, his appointed successor, and Ajit Jain, vice chair of insurance operations, as capable leaders for Berkshire's future. Buffett's reflections on his partnership with the late Charlie Munger highlighted their collaborative success and challenges. Furthermore, Buffett acknowledged the sale of Berkshire's entire position in Paramount Global at a loss, taking full responsibility for the decision. He reiterated his confidence in key holdings like Apple and American Express, emphasizing their importance to Berkshire's portfolio.

Street Views

• Bill Smead, Smead Capital Management (Bearish on the stock market):

  "Buffett is hoarding cash and therefore is bearish on the stock market. He is unlikely to apply those funds unless he has a chance to buy an entire company or there is a major market sell off of 30% or more."

Management Quotes

• Warren Buffett, CEO of Berkshire Hathaway:

  "Apple is even better than American Express and Coca-Cola, which are wonderful businesses Berkshire also owns... Unless something changes dramatically, Apple will remain its largest investment." "The iPhone may be one of the greatest products of all time." "There’s still work to be done, but in the meantime, we are not going to shrink." “When you’ve got somebody like Greg and Ajit, why settle for me?” “He went everywhere with his mind, and therefore he was not only interested in the world at 99, but the world was interested in him.” "I did it all by myself, folks."

• Greg Abel, Vice Chairman of Berkshire’s non-insurance operations:> "An incremental claim"