Another year's Berkshire Hathaway shareholder meeting, with Cook and Gates seen sitting in the audience. The moment when Buffett mistakenly called out "Charlie" was somewhat poignant.
In the latest Berkshire Q1 holdings, approximately 75% of the fair value of its portfolio remains concentrated in American Express, Apple, Bank of America, Chevron, and Coca-Cola.
It's worth noting that Berkshire Q1 still remained a net seller, with cash reserves reaching new highs. In Q1, Berkshire sold nearly $20 billion worth of stocks while only purchasing $2.7 billion, leading its portfolio value to decline from $354 billion at the end of last year to $336 billion.
Although Apple remains Berkshire's largest holding, its stake value dropped from $174 billion at the end of last year to $135.4 billion. As of Q1, Berkshire's cash and cash equivalents grew to a historical high of $189 billion, with net cash at $35.55 billion, and short-term U.S. Treasury bills increased from $129.6 billion in Q4 of last year to $153.44 billion.
The irresistible allure of cash
Buffett mentioned at the shareholder meeting that by the end of Q2, the company's cash and equivalents could reach $200 billion. However, regarding cash management, he stated they wouldn't use this money when interest rates were as high as 5.4%; they would only swing the bat at the right time.
With the expectation of the Fed's first rate cut delayed until Q4, the current high interest rates of 5.25-5.5% are expected to persist until at least September. Assuming the market expects two 50bp rate cuts this year, interest rates could still be maintained at 4.75%-5% next year. Compared to many investments, the USD money market products on the Tiger app remain a very attractive risk-free cash allocation for the next six months.
On the other hand, Buffett net bought $23.8 billion of U.S. short-term bonds in Q1. Buffett previously revealed that he buys 3-month and 6-month Treasury bonds every Monday.
Looking at the current yield of 3-6 month short-term U.S. bonds on the Tiger app, it's around 5.4%, which is exactly what Buffett referred to as something with little risk and the potential to make a lot of money.
Reduced Apple shares
Since reducing its Apple holdings by 10 million shares in Q4 of last year, Berkshire Hathaway once again reduced its Apple holdings in Q1. Data for Q1 shows that as of the end of March this year, Berkshire held a total of $135.4 billion worth of Apple. Given Apple's Q1 stock price drop of about 10%, the number of Apple shares held as of the end of March decreased by approximately 13%, or about 11.6 million shares.
Buffett responded to the question of reducing Apple holdings for the first time at the shareholder meeting, mainly to avoid facing higher tax rates in the future. Due to rising interest rates and expanding fiscal deficits in the United States, taxes may increase. He stated that this was due to the tax factor of realizing considerable returns after investment (Apple's stock price rose by 48% cumulative in 2023, peaking at half of Berkshire's investment portfolio).
Buffett said Berkshire's current federal government tax rate is 21%, which is likely to increase. He believes that even if Berkshire sells a bit of $Apple(AAPL)$ , shareholders won't really mind.
Buffett said, "We still hold a lot of Apple stocks. By the end of this year, we are likely to be the largest holder of Apple common stock. We think holding it is not just holding stocks, but treating it as a business, as is Coca-Cola and American Express." Buffett referred to Apple as a better company than Coca-Cola and American Express.
"When we allocate funds, we view the targets as each company. We don't predict the market, nor do we pick stocks alone. Buying stocks is buying companies. If it's just picking stocks, it's a waste of time," Buffett said in evaluating Apple's business. Investing in Apple is like investing in See's Candies; it's all about studying consumer behavior, which is important. You can see what products customers are interested in, which is a consumer preference. I don't know how the iPhone works, but I know consumers like it, and buying a second iPhone is easier than buying a second car. Moreover, Apple's CEO, Cook, is as outstanding as Jobs.
In its recent financial report, Apple announced a new $110 billion buyback plan and increased its dividend rate, both of which are return methods that Buffett greatly appreciates.
The energy investment is huge opportunity
Buffett's successor, Greg Abel, chairman of Berkshire Hathaway Energy, revealed at the shareholder meeting the "incredible" trend of potential growth in future electricity demand.
As mentioned earlier, Huang Renxun and Ultraman have expressed similar views: artificial intelligence requires breakthroughs in energy because the electricity consumed by artificial intelligence will far exceed people's expectations.
Musk has been more explicit, stating that after the chip shortage comes the shortage of electricity, "next year electricity will not be able to meet all chip demand."
The high energy consumption of AI is an undeniable fact; data centers and supercomputing centers are both "power monsters." Earlier, Alex de Vries, a data expert at the Dutch National Bank, estimated that OpenAI's ChatGPT consumes over 500,000 kilowatt-hours of electricity per day to process approximately 200 million user requests, equivalent to over 17,000 times the daily electricity consumption of US households.
Buffett said that some states in the United States are beginning to control electricity investments, such as Utah. In terms of public utilities, in the 1930s, some privately owned utility companies or public utility companies may have been more efficient than state-owned ones, but now, companies in this field must make substantial investments, which private investors sometimes cannot afford. We are very satisfied with Berkshire's investment in the energy sector. We will have returns, but the return rate may not make us very wealthy. Of course, if there are no returns at all, we won't do it. The current work may be related to changes in the current environment, and the investment costs now are surprising, but we have some funds, and the support of some large projects is important, and we won't let the investment go adrift.
Abel also revealed Berkshire's future development plans in the energy sector. He said the company will continue to increase its investment in renewable energy and actively promote technological innovation and industrial upgrading to meet the growing demand for electricity.
Although Berkshire Hathaway does not directly invest in AI, and Buffett even stated that he knows nothing about AI, the underlying layout investment of Berkshire in the energy sector undoubtedly will also enjoy the dividends of AI.
Last week, the utilities sector became the best-performing sector in the S&P 500, driven by companies such as $GE Vernova Inc.(GEV)$ and $NextEra(NEE)$ .
For personal planning, Buffett, guided by Munger's advice, encourages us to prioritize education, associate with the right people, and find those who can help us find the right direction in life. Seek out your interests and find people to share your life with. It's important to be patient but not to forget your original intentions.
Lastly, Buffett suggests that the best skill in investing is to avoid risks and steer clear of misfortune. As Munger said, if you know where you will die, never go there.
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