Judging from Berkshire Hathaway's financial report, Buffett did not predict the arrival of an economic recession.
To start with the conclusion, there is no evidence of that!
Berkshire Hathaway's financial report is quite exhausting to read. Generally speaking, Buffett's main businesses are insurance, utilities and energy, rail freight, manufacturing, services, and retail, which are five sectors.
From the distribution of total assets, the cash holdings of $32.287 billion are not the largest; the largest is the investment in U.S. short-term Treasury bonds, totaling $288.031 billion, followed by equity investments of $271.65 billion, of which investments in five publicly traded companies account for $188.9 billion.
In simpler terms, although Berkshire Hathaway reduced its holdings in Apple and Bank of America by a total of $15.6 billion, this only represents a 8.26% reduction relative to equity investments, which is not a significant amount. From the actual operations, it seems that Berkshire Hathaway has gradually adopted defensive measures, concerned about a potential economic recession, thereby increasing its cash holdings. However, this is merely a defensive posture and not a definitive prediction of an economic downturn.
- Increased short-term U.S. Treasury bonds
The holdings of short-term Treasury bonds increased from $153.44 billion in the first quarter to $288.03 billion in the third quarter.
- Reduced stock investments
In the first quarter, stock sales generated a profit of $1.997 billion.
In the second quarter, stock sales generated a profit of $9.71 billion.
In the third quarter, stock sales generated a profit of $13.32 billion.
From these two points, it can be seen that the investment in short-term U.S. Treasury bonds is gradually increasing, and the sale of stocks is also gradually increasing, primarily to cope with uncertain risks. It appears that Berkshire Hathaway is gradually reducing its exposure to technology and banking sectors, possibly due to concerns about these sectors.
After all, from the holding data over three quarters, Apple saw the largest reduction, with a total reduction of 62.5% over three quarters, while Bank of America was only reduced by 20%. The energy sector's Chevron saw a slight reduction, while other companies like Coca-Cola (consumer goods) and American Express (financial services) did not experience any reductions.
Therefore, based on the financial report data, I do not believe that Buffett or Berkshire Hathaway is anticipating an economic recession. Instead, it seems they are investing in high-quality companies for the long term, with reductions occurring mainly when adjusting the outlook for specific companies rather than a change in overall market strategy.
Berkshire Hathaway's liquidations and economic recessions
In 2007, they began reducing their stake in PetroChina and completed the liquidation in 2008.
During the 2008 financial crisis, Buffett still held stocks in Goldman Sachs and JPMorgan Chase.
At the beginning of 2020, Berkshire liquidated its holdings in four major U.S. airlines, including American Airlines, Delta Airlines, Southwest Airlines, and United Airlines.
In the second quarter of 2020, they significantly reduced their stake in Goldman Sachs, from 12 million shares at the end of the first quarter to 1.9 million shares, and then completely liquidated in the third quarter.
In 2020, Berkshire Hathaway reduced its stake in JPMorgan Chase and completely liquidated in the third quarter.
During the 2020 economic recession, they still held shares in Apple, Coca-Cola, American Express, and Bank of America, with Apple experiencing a maximum drawdown of 31.5%, but Buffett did not reduce any of his Apple shares.
In 2022, they gradually reduced their stake in BYD, and as of July 2024, the holding ratio has fallen below 5%.
In 2022, they reduced some shares in Bank of America but still remained one of its major shareholders.
In 2022, they reduced some shares in Chevron.
During the 2022 economic recession, Buffett still held shares in Apple, Coca-Cola, American Express, etc., with Apple experiencing a maximum drawdown of 28.9%, but Buffett did not reduce any of his Apple shares.
Berkshire Hathaway's liquidations and non-economic recessions
In the third quarter of 2020, as the economy recovered, Berkshire Hathaway reduced its stakes in Wells Fargo and JPMorgan Chase.
At the beginning of 2021, as the global economy gradually recovered from the pandemic, Berkshire Hathaway reduced its holdings in Apple during this period.
In the first half of 2022, Berkshire Hathaway reduced some shares in General Motors and Chevron.
Now in 2024, Berkshire Hathaway still has not reduced any shares in Coca-Cola and American Express, leading to the same conclusion: Buffett is merely adjusting his investment strategy and taking defensive measures, but this does not indicate a prediction of an economic recession.
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