FX168 Financial News (North America) Buffett is one of the most respected investors in the world. In the public eye, he has been working in the investment field for nearly 70 years, creating incredible returns for anyone willing to invest with him. Currently, the value of Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) exceeds 1 trillion US dollars, largely due to Buffett's investment abilities.

Currently, Buffett and his investment manager colleagues oversee about 600 billion US dollars of investable assets for Berkshire Hathaway shareholders. When Buffett takes action in Berkshire's investment portfolio, the entire investment community takes notice.

Berkshire's latest move is to sell part of its investment in Bank of America (NYSE: BAC). The bank's stock was once Berkshire's second largest position after Apple (NASDAQ: AAPL), but Buffett is selling it off and may purchase another high-yield investment.

Investors usually have to wait for institutional investors like Berkshire Hathaway to submit a Form 13F to the Securities and Exchange Commission (SEC) to see what changes they have made in their investment portfolio for the previous quarter. However, since Berkshire Hathaway owns over 10% of the outstanding shares of Bank of America, it is required to report any changes in its ownership within three business days. Currently, Buffett has sold over $9.6 billion worth of Bank of America stock in the third quarter and another $0.14 billion in the first two days of October.

Bank of America is not the only company Buffett has been reducing his holdings in. Between the fourth quarter of 2023 and the second quarter of this year, he sold over half of Berkshire's position in Apple. Although Apple remains Berkshire's largest investment, the sales in the second quarter were the largest in Berkshire's history.

In fact, starting from the fourth quarter of 2022, Buffett has been a net seller of stocks for seven consecutive quarters. Considering the scale of Bank of America stock sales, Berkshire might confirm its eighth quarter of net sales when reporting earnings next month.

Why did Buffett feel the need to sell a large portion of Berkshire's largest stake? There is a simple explanation: taxes and valuation.

Buffett anticipates that with the expiration of current tax laws in 2025, the tax rate on current corporate profits will increase. If nothing changes, they might revert from the current 21% rate to 35%. Kamala Harris has proposed a 28% corporate tax rate. Trump may push to extend the 21% rate set during his previous administration. However, given the current government deficit, Buffett believes the current rate is unsustainable.

However, Buffett did not explicitly state that it only makes sense to sell now to save on taxes when he also believes that the stocks he sells are trading close to or above their intrinsic value. Buffett will not sell stock transactions that are significantly below their actual value just to save on taxes. Given his lack of investments in other companies, it is clear that Buffett does not currently see many opportunities to invest the funds of Berkshire Hathaway.

But Buffett has always seized the opportunity to purchase a high-yield investment, which may be where most of the cash from the sale of Berkshire stocks is headed.

Ultra-safe, high-yield investments on Berkshire's balance sheet.

As of the end of the second quarter, Berkshire Hathaway held US Treasuries worth $238.7 billion. As of the end of the third quarter of 2022, the total is $276.9 billion, an increase from $109 billion.

These short-term bonds mature within 12 months. Buffett prefers short-term government bonds because they provide the highest level of security. They are less insulated from interest rate risks that could lead to a decrease in bond value, which could result in value loss if Buffett needs liquidity.

Over the past two years, Buffett has benefited from both safety and yield, as the interest on short-term bonds is higher than that of long-term bonds. This is because many expect interest rates to remain low in the long run as the Fed cuts rates and aims to maintain rate stability. However, Buffett has stated that he is willing to keep most of Berkshire's assets in government bonds even though they may not pay as much.

The reason Buffett is turning to safe investments is the high yield he cannot find in today's market. The reason is simple: he believes there are no better ways to make money.

While this may sound like a harsh warning to most investors, it only applies to the portion of the market where Berkshire can operate. The stocks Buffett may buy are limited to the largest companies in the world. This makes it more difficult to achieve market-beating returns. Buffett said at the May Berkshire Hathaway shareholders' meeting: "I don't want to operate with $10 billion now." He pointed out, "I think Charlie and I could earn high returns above $10 million."

This indicates that he does not recommend ordinary investors to pile money into government bonds. For "only" small investors with 10 million dollars or less, there are plenty of opportunities. However, if investors are considering short-term investments, short-term government bonds still offer attractive returns.