Warren Buffett Dumps Apple and Bank of America to Pile Into This High-Yield Investment

Warren Buffett has been leading Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) since 1965, but at the end of this year, he's finally retiring at the age of 95. In that time, he's grown Berkshire Hathaway to a trillion-dollar company and made himself one of the world's richest people along the way.

Berkshire Hathaway will surely look different without Buffett at the helm, but that hasn't stopped him and the company from making moves -- and some may be different from what we're used to seeing from the conglomerate. Over the past couple of years, Berkshire Hathaway has greatly reduced its stake in Apple and Bank of America, two companies that have routinely been among its largest holdings.

As of the end of the third quarter, Berkshire Hathaway owns just over 238 million Apple shares, accounting for 21.4% of its stock portfolio. It owns just over 568 million Bank of America shares, making up 9.6% of its stock portfolio. These are still large holdings, no doubt, but they're much smaller than they've historically been.

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Why has Berkshire Hathaway been selling its Apple and Bank of America shares?

Berkshire Hathaway has made an incredible amount of money from Apple's stock over the years, but it's hard to overlook the company's current high valuation compared to its projected earnings growth. Its forward P/E ratio is close to 33.5, which is pretty expensive for a company whose earnings are expected to grow modestly in the coming years.

Bank of America's valuation isn't as much of an issue, but it's still noticeably more expensive than when Berkshire Hathaway first began purchasing shares and adding to them in 2020. Outside of that, Bank of America's business, while still thorough, is dealing with an increasingly competitive environment.

Looking outside of the businesses themselves, it could make sense for Berkshire Hathaway to trim some of its wins with these companies because the corporate tax rate is currently favorable. There's no telling if the corporate tax will change significantly, but if it does, chances are it won't be in corporations' favor. Even though a few percentage points may seem small on paper, it makes a big difference when you're talking about selling billions worth of shares.

Where Buffett and Berkshire Hathaway are putting their money

With all the selling activity, you may be surprised to learn that Berkshire Hathaway isn't putting much of that cash into other stocks; the bulk of it is going into U.S. Treasury bills (T-bills).

At the end of the third quarter, Berkshire Hathaway held $320.5 billion in T-bills. For perspective, that's more than the market capitalization of CVS Health, Altria, and Starbucks -- combined (as of Nov. 24). In the quarter, Berkshire Hathaway added close to $10 billion in T-bills, continuing its trend of stashing money away in the low-risk holdings.

T-bills are more than just a low-risk way for Berkshire Hathaway to protect capital, though. With the current interest rates (around 3.9%), Berkshire Hathaway is making quite a bit on them. Consider that $320.5 billion in T-bills with a 3.9% rate would pay Berkshire Hathaway close to $12.5 billion every year.

3 Month Treasury Rate data by YCharts

Although longer-term T-bills have higher rates, Buffett emphasizes the importance of Berkshire Hathaway having liquidity. It wouldn't be wise to have $300 billion-plus tied up in long-term T-bills in case an opportunity arises, and Berkshire Hathaway needs relatively quick access to cash to fund it.

Buffett definitely prefers owning stocks and equities over T-bills, but with the current environment -- high valuations and fewer attractively priced acquisitions -- this is a smart move for the company. It also leaves the incoming CEO, Greg Abel, with plenty of capital to work with once he takes over after Buffett retires at the end of this year.

Bank of America is an advertising partner of Motley Fool Money. Stefon Walters has positions in Apple. The Motley Fool has positions in and recommends Apple, Berkshire Hathaway, and Starbucks. The Motley Fool recommends CVS Health. The Motley Fool has a disclosure policy.