Why Warren Buffett dumped $75 billion stocks?

In the second quarter of 2024, Warren Buffett’s firm, Berkshire Hathaway, sold $75 billion worth of stocks. And most of it is from Apple stocks. Why did he do that? Is he preparing for the potential recession, or does he have any other strategy behind his move? Let’s find out.

US national debt crisis

The biggest reason Warren Buffett has sold his apple stocks is the US national debt. The US national debt is a crisis that America has been facing for a long time, and the debt has increased to an unbelievable level of $35 trillion. We have explained in detail the US national debt crisis in this article, make sure you read it and understand it.

To just service this national debt, the US government spent $726 billion in 2023. The total income of the US government is around $4.5 trillion, and it spends around $6.2 trillion. So the US government is borrowing $1.7 trillion every year. This is also known as a fiscal deficit of $1.7 trillion.

US corporate tax and fiscal deficit

As explained in this article, the income of the US government comes from collecting different types of taxes. One of the taxes the US government collects is a corporate tax, which is applied to all companies. Before, this tax was 52%, which was then reduced to 35%, and currently it is 21%. Which is lower than its previous levels.

At the moment, the US government is collecting around $480 billion in corporate taxes. It is about 10% of the government’s total income. As the US national debt is rising by $1 trillion per 100 days, the pressure on the US government to reduce the fiscal deficit is increasing. To reduce the fiscal deficit, the government can increase the taxes on citizens or increase the corporate tax from 21% to 30–35%. So even if the US government increases it to 35%, then corporate tax collection will increase to around $750 billion. That will be a significant increase in the income of the US government.

So, according to Buffet, this was the best time to book profits. Their company will pay a lower tax on their gains. This was the reason why Warren Buffet sold $75 billion worth of stocks.

Warren Buffett holds $277 billion cash

After selling, Berkshire Hathaway holds $277 billion in cash. Now, whenever you come across this term, such as any company holding certain billions of dollars in cash, most of the time, it doesn’t mean actual cash. Usually the money that is needed for day-to-day operations is in cash, and the extra surplus cash is invested in highly liquid investments such as US Treasury bonds, where it can be quickly converted to real cash.

Many newspapers have reported that Berkshire has $277 billion in cash reserves. If you look at the balance sheet of Berkshire, you cannot see this exact number of $277 billion. If you add these numbers, then you will get a total of $277 billion. You can also see that the majority of the cash is reinvested in buying the Treasury bills of the US government. Which means they lent $234 billion to the US government.

Warren Buffett invest in US debt

Now you might be wondering why he would do that, right? It is because US Treasury bills are highly liquid and are in constant demand. So if Buffet needs cash, he can sell those Treasury bills anytime, as there are buyers who are always ready to buy them. If he doesn’t sell, then he gets 5% interest on those bonds when they mature. So in both cases, the buffet wins.

Reason for sell

So basically, because of the rising US national debt, the US government might increase the corporate tax rate. Buffett kind of anticipated that to. service the increasing national debt, the government might increase the tax rate, which would significantly reduce his profit. So, Buffet sold its stakes in Apple and invested that money again in US national debt.

Buffett’s Apple stock holding

Also, many people were thinking that the buffet sold 50% of their apple stakes. That means there is some issue with Apple or its growth in the future. When Buffett sold his apple holding, the apple share dropped by 5%. Buffett started investing in Apple in 2016 and thinks that Apple is one of the best businesses for investment. Since then, they have accumulated 800 million shares of Apple, which were valued at $185 billion.

Berkshire has sold 390 million shares so far. As the Buffett was anticipating that the government might increase the corporate government tax, he thought of booking profit and taking some potential gains. Even after selling, Apple is still the largest stock in Buffett’s portfolio. His portfolio has 400 million shares of Apple, which are valued at around $90 billion, which makes up 32% of Buffett’s portfolio of Apple stock.

Learn from Warren Buffet

One of the crucial lessons from Buffett’s management is that you also need to know the exit strategy of your investment. You cannot stick to one strategy and need to make an informed decision according to the market situation. If you want to learn more about the various investment strategies for maximum return, then subscribe to the channel and to our newsletter on our website. We send a weekly newsletter about various investment opportunities.

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