This Buffett Investment Is Brilliant. (Hint: It’s Not Apple, Chubb, nor Occidental Petroleum)
Berkshire Hathaway made several interesting moves in its portfolio during the first quarter. But how the Oracle of Omaha is steadily growing his cash pile may intrigue you.
Over the last several weeks, companies have been reporting earnings for the first quarter of 2024. Considering both the S&P 500 and Nasdaq Composite are notching record highs, investors have been keen to assess the progress of the hottest themes in the market. Artificial intelligence (AI), new breakthrough medications in the pharmaceutical industry, and a red-hot energy sector are all fueling buying activity in the market.
It’s easy to get lost among the euphoria and hoopla driving the market right now. However, I’d encourage investors to take a step back and look at what others on Wall Street are doing.
Warren Buffett’s portfolio is often a good place to start. Since 1965, Buffett’s Berkshire Hathaway (BRK.A -1.12%) (BRK.B -0.86%) has returned 4,384,748%. At the end of the first quarter, Berkshire held $189 billion of cash and equivalents on its balance sheet. With so much capital at its disposal and ripe stock market conditions, where might Buffett be looking for value?
As usual, the Oracle of Omaha left some clues in his latest shareholder letter. Let’s explore where Buffett is aggressively investing his money and assess why this might be a good strategy for you, too.
Buffett made some big moves during the first quarter
Buffett is a rare breed. His long-term success, coupled with his seemingly simple strategy, has earned admiration from investors all over the world. When Buffett buys or sells a stock, his moves have the power to shake the market considerably.
During the first quarter, Buffett made some notable changes to his portfolio. For starters, he trimmed his stake in Apple by nearly 13%. While Apple remains Berkshire’s largest position by a considerable margin, there was some initial shock from the sale.
In addition to Apple, Buffett also sold stock in Sirius XM, Paramount, Louisiana-Pacific, and Chevron. Buffett added to only one existing position: Occidental Petroleum. Moreover, he finally revealed a new position in insurance company Chubb.
Image source: The Motley Fool.
All things considered, I’d say most of Buffett’s moves during the first quarter were pretty mundane. But the cash pile is interesting.
There is one investment in particular that Buffett seems to favor
At the end of the first quarter, Berkshire held $35.5 billion of cash on the balance sheet. In addition, the company also boasted $153 billion of short-term investments.
What exactly does this mean?
BRK.B Short Term Investments (Quarterly) data by YCharts
In short, Buffett has been buying up Treasury bills. Given how strong the stock market has been across different sectors, this move might seem perplexing. However, in Berkshire’s first-quarter report, management declared, “We continue to believe that maintaining ample liquidity is paramount and we insist on safety over yield with respect to short-term investments.”
Remember, Buffett is a contrarian investor. Sure, the markets are showing some real strength right now, but inflation has remained stubbornly high, adding an extra layer of complexity when assessing the state of the economy. Despite several growth opportunities available right now, Buffett is not known to follow tailwinds or chase lofty valuations.
As always, Buffett is playing the long game, and his decision to buy Treasury bills is a classic feature of his overall strategy.
3 Month Treasury Bill Rate data by YCharts
Considering the current three-month Treasury bill rate of 5.3% is the highest it’s been in nearly 20 years, combined with the backing of the U.S. government, pouring cash into these bonds looks genius.
With so much unpredictability surrounding the macroeconomy, I think Buffett’s choice to roll over Treasury bills every 90 days is wise. While there are ample opportunities to uncover lucrative growth, many stocks and industries still remain highly volatile right now. Furthermore, I don’t see the market volatility subsiding anytime soon. For these reasons, I wouldn’t be surprised to see Buffett continuing to double down on Treasuries for the time being.
If you’re an investor who is looking for a steady, reliable way to bolster your cash, then following Buffett’s lead into the Treasury bond market might just be for you.
Adam Spatacco has positions in Apple. The Motley Fool has positions in and recommends Apple, Berkshire Hathaway, and Chevron. The Motley Fool recommends Occidental Petroleum. The Motley Fool has a disclosure policy.
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