Warren Buffett Is Holding on to Cash — Should You Too?

By the account of economists E.J. Antoni and Peter St Onge, the US economy has been in a recession since 2022. They explain the growing chasm between Main Street’s perception and Wall Street’s consensus as one of understated inflation. If the GDP figures take in unadjusted cumulative inflation, they would show fake growth.

When adjusted, the real GDP value points to a protracted recession, starting in Q1 2022. Similar reasoning likely led Berkshire Hathaway (NYSE:) to accumulate record amounts of cash reserves, having reached a peak of $325.2 billion in recently reported Q3 2024 earnings.

For retail investors, it is not recommended to hoard cash during recession as this amounts to missing many investing opportunities. But can retail investors glean useful insight from Warren Buffett’s latest moves?

Are Berkshire Hathaway’s Earnings Recessionary?

For the Q3 earnings period ending September, released on November 2nd, the multinational investing conglomerate $26.5 billion net earnings compared to a loss of $12.5 billion in the year-ago quarter. But when market distortions are excluded, Berkshire’s operating earnings actually dropped by 6% year-over-year to $10.1 billion.

Across many diversified sectors, the company gained most income from insurance, alongside manufacturing, service and retailing, both accounting for 29% income each. Insurance underwriting is close second making 17% of Berkshire’s earnings, followed by the railroad segment (BNSF) at 11%. The latter is owed to greater profitability from higher grade consumer good shipments.

For the three quarters in 2024, Berkshire’s investment income from insurance ended up 41% higher than in 2023. Given that the insurance sector is recession resistant, due to mandates and flexible rates, this is another point for the aforementioned thesis that recession has been unfolding.

When it comes to building up Buffett’s cash position (including short-term treasuries), it is up from $277 billion in Q2 to an all-time high of $325.2 billion. This is a result of exiting many profitable positions, which ended up restructuring Berkshire’s portfolio.

The Current State of Buffett’s Trades

Over the last two years (eight consecutive quarters), Berkshire has been a net seller of stocks, having spent merely $1.5 billion in new stock positions. Interestingly, the company omitted stock buybacks this quarter, which hasn’t happened since Q2 2018.

Likewise, it has been eight years since Berkshire acquired any company. Again, this aligns with the risk-off strategy one would commonly see during a recessionary period. Apple (NASDAQ:) stock was Berkshire’s major stock seller, having sold around 600 million shares during 2024.

This contracted Apple’s portfolio weight from nearly 50% by the end of 2023 to now 30%, or from $174.3 billion to approximately $69.9 billion worth of AAPL shares. Alongside Apple, Bank of America Corp (NYSE:) stock was also on the chopping block, having dropped from $41.1 billion in Q2 to $31.7 billion BAC exposure in Q3.

Government Spending the Likely Culprit for Buffett’s Exits

Previously, Buffett pointed out that Apple would remain the pillar of Berkshire’s portfolio. However, he expects the federal tax rate on gains to reach new levels. This aligns with the continuous ballooning of government spending, which counts as GDP growth.

Although there is yet no sign that the government will cut spending, even the IMF in 2018 concluded that it would be preferable than to raise taxes. According to aforementioned economist E.J. Antoni, USG purchases again outpaced consumer spending growth in Q3.