What’s behind Warren Buffett’s swelling cash pile at Berkshire Hathaway?

Investors this weekend shifted their focus to big moves disclosed by Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B). The conglomerate led by Warren Buffett cut its notable stake in iPhone-maker Apple (AAPL) by 25% – after slashing it by almost half in Q2 – while holdings in heavyweight lender Bank of America (BAC) were also reduced by more than 20%. It’s the latest in an unwinding being revealed by Warren Buffett and his team at Berkshire (BRK.A)(BRK.B), whose cash pile inflated to a record $325B as of Sept. 30, from $277B only a quarter ago.

Bigger picture: Many are debating what the growing cash hoard means and its relation to the current market environment. Does the Oracle of Omaha see a tough economic downturn on the horizon, or is keeping to his maxim of “being fearful when others are greedy”? Maybe it’s a lack of value and attractive stock opportunities, combined with an expensive market as assessed by his indicators? While some of those factors might be contributing to his decision-making, pay close attention to what he had to say at Berkshire’s (BRK.A)(BRK.B) last annual meeting in May.

“I don’t mind at all, under current conditions, building the cash position,” Buffett declared at the event known as Woodstock for Capitalists. “I think when I look at the alternative of what’s available in the equity markets and I look at the composition of what’s going on in the world, we find it quite attractive.”

“One thing that may surprise you… Almost everybody I know pays a lot more attention to not paying taxes than I think they should. We don’t mind paying taxes at Berkshire, and we are paying a federal 21% rate on the gains we’re taking. That rate was 35% not that long ago, it’s been 52% in the past… and the [federal government] can change that percentage any year. I would say that with present fiscal policies, I think that something has to give, and higher taxes are quite likely… if they don’t want the fiscal deficit to be this large because that has some important consequences.”

Outlook: Berkshire Hathaway (BRK.A)(BRK.B), which recently entered the $1T market cap club, also froze stock buybacks this weekend, which can further contribute to its immense cash load. Remember that the pile of greenbacks has been making easy money in the current rate environment, with profits of $3.5B tied to Berkshire’s (BRK.A)(BRK.B) cash and Treasury position over the past quarter. Should he need it, Buffett can easily access many of those funds to put to work in a downturn, or even on mergers and acquisitions if the value is warranted.

Here’s a list of Berkshire’s other top holdings: American Express (AXP), Chevron (CVX), Chubb (CB), Citigroup (C), Coca-Cola (KO), Davita (DVA), Kraft Heinz (KHC), Moody’s (MCO), Occidental Petroleum (OXY) and Sirius XM (SIRI).

More on Berkshire Hathaway

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