Warren Buffett reaffirms his preference for stocks over cash

As questions continue to swirl about Warren Buffett’s recent preference for cash, Berkshire Hathaway’s chairman and CEO says he’s not giving up on stocks.

“Despite what some commentators currently view as an extraordinary cash position at Berkshire, the great majority of your money remains in equities,” Buffett wrote in his annual letter to the company’s shareholders, which was published Saturday. “That preference won’t change.”

Last year, Berkshire’s ownership of marketable equities fell from $354 billion to $272 billion, according to Buffett. In the banking sector, the legendary investor sold off big chunks of his company’s stakes in Bank of America , Citigroup and Capital One Financial.

But at age 94, Buffett sought to convey Saturday that his core investing philosophy — which has made him one of the world’s richest people — hasn’t changed.

“Berkshire shareholders can rest assured that we will forever deploy a substantial majority of their money in equities,” he wrote.

Though Berkshire is sitting on a massive stack of cash and Treasury bills, Buffett noted the value of the company’s non-quoted controlled securities actually increased last year.

“Paper money can see its value evaporate if fiscal folly prevails. In some countries, this reckless practice has become habitual, and, in our country’s short history, the U.S. has come close to the edge,” he wrote.

Buffett also offered some insight into why he might have soured on certain stocks, even if he didn’t name any particular companies.

“With marketable equities, it is easier to change course when I make a mistake,” he wrote. “Additionally, with ownership of minority positions, we can’t change management if that action is needed or control what is done with capital flows if we are unhappy with the decisions being made.”

Buffett’s substantial retreat from bank stocks, which reinforced his reputation as a Wall Street contrarian, has sparked speculation about his motivation.

Last year, Berkshire cut its stake in Capital One by 40%, its holdings in Citi by 74% and its position in Bank of America by 34%, according to public filings that show the company’s positions as of Dec. 31.

In the last year, those three banks’ stock prices have risen by 48%, 44% and 33%, respectively.

Buffett could be selling off bank stocks to shore up cash, clean the slate for his eventual successor or just slim down Berkshire’s over-exposure to specific companies, said Kevin Heal, an analyst at Argus Research Group.

Omaha, Nebraska-based Berkshire may also be seeking to ensure that it has adequate dry powder if an opportunity appears, Heal told American Banker earlier this week. Berkshire has a history of swooping in and buying major positions in troubled companies or industries — including financial institutions.

For his part, Buffett has acknowledged that Berkshire holds far more cash and U.S. Treasury bills than conventional wisdom would dictate as necessary. “Extreme fiscal conservatism is a corporate pledge we make to those who have joined us in ownership of Berkshire,” Buffett wrote last year in a letter to shareholders.

Selling when others are buying

Some observers argue that now is the time to invest in bank stocks, as the prospects of deregulation, beneficial tax policies and a potential rebound in mergers under the Trump administration make 2025 a promising year for the sector.

Analysts have even been extra bullish recently on some of the very stocks Berkshire has been dumping.

Wells Fargo analyst Mike Mayo wrote in a January note that he thinks Citi’s stock value could double in the next three years.

Mihir Bhatia, an analyst at Bank of America, upgraded Capital One from neutral to buy on the expectation that the company’s pending acquisition of Discover Financial Services will close and boost performance.

And Bank of America, which Berkshire bought into in 2011, still makes “an attractive play,” per Truist Securities analyst John McDonald in a February note. Buffett made its initial $5 billion investment in BofA when the Charlotte, North Carolina, company was on the rocks following the financial crisis.

Despite shedding more than one-third of its stake in Bank of America last year, Berkshire is still the bank’s largest shareholder, holding more than 680 million shares, or nearly 9% of the company.

“I don’t know what exactly he’s doing, because frankly, we can’t ask, and we wouldn’t ask,” Bank of America CEO Brian Moynihan said at a conference in September.

McDonald of Truist Securities said in a note Friday that in a conversation the night before, Bank of America Chief Financial Officer Alastair Borthwick didn’t have additional details to share about Buffett’s sell-off of the bank’s stock.

“The main question is what the pace has been so far [year-to-date] and how much longer it may potentially continue, both of which feel somewhat unclear/unknowable at the moment,” McDonald wrote.

Piper Sandler analyst Scott Siefers wrote in a note that Berkshire’s rapid shedding of Bank of America could stoke investor fear that there’s more to come, “which could impede momentum a bit despite the company’s good story otherwise.”

“We cannot begin to speculate on why Berkshire might be selling,” Siefers said, referring to the company’s stake in Bank of America. “But a glance at the firm’s other changes suggests a pretty broad-based reduction in exposure to financials overall.”

Still a believer in American Express

Buffett has affirmed confidence in some financial stocks, such as Ally Financial, which has been a laggard in the market, along with Visa and American Express. Buffett first invested in American Express in the 1960s, and the credit card company’s success helped fuel Berkshire’s runaway growth.

In his letter to shareholders last year, Buffett said he would leave Berkshire’s holdings in American Express untouched throughout the year. The credit card issuer made up about 4%-5% of Berkshire’s net worth at the time. Buffett wrote that Amex had been mismanaged in the past, “but definitely not now.”

“When you find a truly wonderful business, stick with it,” Buffett wrote, referring to Berkshire’s ownership of Amex and Coca-Cola. “Patience pays, and one wonderful business can offset the many mediocre decisions that are inevitable.”

At the end of 2024, Amex and Bank of America were two of Berkshire’s five largest investments in equity securities, along with Coca-Cola, Apple and Chevron. That top-five list was unchanged from a year earlier.

Argus’ Heal speculated about one possible reason that Buffett has been holding onto its Amex stake while paring down its exposure to certain other banks. Buffett could be concerned about pockets of the economy but still have confidence in the health of high-income consumers, which comprise the bulk of Amex’s business, Heal said.

“I think we’re looking at — and maybe Berkshire is looking at it the same way — a dual economy, where the haves have a lot and the have-nots have nothing,” Heal said. “The overall U.S. economy is fine, but the low- to moderate-income folks are living paycheck to paycheck.”

Assessing the impact of climate change

One key theme in Buffett’s letter Saturday was the impact of climate change on businesses. It’s an issue that’s particularly pressing for Berkshire, which has exposure to both the insurance industry and the energy sector.

“Property damage arising from hurricanes, tornadoes and wildfires is massive, growing and increasingly unpredictable in their patterns and eventual costs,” Buffett wrote. “Climate change may have been announcing its arrival.”

In Berkshire’s annual report, released Saturday, the company estimated that the January 2025 wildfires in Southern California could result in pretax losses of about $1.3 billion for its insurance group.

“It’s our job to price to absorb these and unemotionally take our lumps when surprises develop,” Buffett wrote.

But he also indicated that climate change may present certain opportunities for insurance companies. He wrote that pricing in the property-casualty insurance business strengthened last year, which he said reflected a large increase in damage from storms.

Buffett, who will turn 95 in August, has recently been alluding to his mortality. “Father Time always wins,” he wrote in a November letter to shareholders.

In 2021, Buffett confirmed his pick to take over as CEO of Berkshire was Vice Chair Greg Abel, who is currently 62 and leads the firm’s non-insurance operations.

In his letter to shareholders on Saturday, Buffett did not provide any more specific information about the company’s succession timeline, but he did write: “At 94, it won’t be long before Greg Abel replaces me as CEO and will be writing the annual letters.”