Buffett Invests in T-bills instead of Stocks, Waits for Bad Stuff to Happen, Cash is King at 5%-plus

When the Oracle of Omaha asks about stocks at these prices, he’s suddenly no longer taken seriously. It’s only when he promotes actions that everyone gets on his side.

By Wolf Richter for WOLF STREET.

Treasury bonds are now all the rage at Berkshire Hathaway. They’ve been gaining between 5.0% and 5.5% since mid-2023, and Warren Buffett decided it was a good deal, rather than stocks at current prices, and took charge .

At the end of March, the massive conglomerate held $153 billion in Treasuries, up $24 billion from the previous three months, up almost $50 billion from March 2023, and up $86 billion from March 2023. compared to March 2022 ($67 billion), according to BRK’s 10-Q filings. It was in 2022 that Treasury bills began paying notable interest again.

If BRK earns an average of 5.3% on its Treasuries in the current quarter, that would represent about $2.4 billion in risk-free interest income. For comparison, it reported total pretax profit of $15.7 billion for the first quarter. Income from Treasury bills is therefore significant.

Total Treasury bills, cash and cash equivalents jumped to $189 billion, up $21 billion in three months and $59 billion year-over-year ($130 billion in first quarter 2023).

Excluding the amounts held by “railroad, utility and energy” companies, the total of Treasury bonds and cash jumped to $182 billion, and Buffett said at the shareholders’ meeting that it was “a reasonable assumption” that it would reach $200 billion by the end. of June, and that he was “quite satisfied” with this position. Cash is king.

Converting Apple shares into Treasury bills.

While stocking up on Treasuries – of which the government issues a tsunami every week – BRK sold 13% of its stake in Apple in the first quarter, or about 116 million shares, after selling about 10 million shares during the first trimester. quarter. Apple remains BRK’s largest stock holding, worth $135.4 billion as of March 31, according to BRK’s 10-Q filing today.

Clearly, Buffett has praised Apple and its stock, because BRK still held $135.4 billion as of March 31 and he doesn’t want to dump the stock before he can dump more.

But he sold Apple and bought Treasuries with the proceeds, instead of other stocks, and that huge pile of interest-bearing cash became a topic at Saturday’s shareholder meeting, and we asked him why he didn’t put that on. money at work – although it works very well, producing over 5% risk-free.

Earn more than 5% risk-free while waiting for bad things to happen.

“I don’t think anyone sitting at this table knows how to use it (money) effectively, and that’s why we don’t use it,” Buffett said.

“We’d love to spend it, but we won’t spend it unless we think we’re doing something that has very little risk and can make us a lot of money,” he said.

“We only swing on courses we like,” he said. And right now, they don’t like anything other than Treasuries.

“As the world becomes more sophisticated, complicated and intertwined, more problems can occur,” and the company wants to be able “to act when that happens,” he said. Waiting for a sharp drop in stock prices, to make this cash grow at reasonable price levels?

Obviously…

When Buffett is not enthusiastic about stocks, is rather gloomy about their potential, waits for them to fall, dumps a big pile of Apple and invests in Treasuries – and explains why – all of a sudden , no one takes him seriously anymore.

There are voices in the financial media that kindly dismiss all of this. Just an old guy walking away. It’s only when he promotes stocks, or a particular stock, that the financial media and other Wall Street outlets see him as the Oracle of Omaha and go along with him. Some things are just funny, without anyone wanting them to be.

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