In his February letter to shareholders, Warren Buffett announced a new record Berkshire Hathaway (BRK.A -0.55%) (BRK.B -0.54%) set in 2024: It paid more in taxes than any company ever paid the U.S. government in a single year. And that’s despite significantly lower tax rates in recent years than throughout the history of Berkshire Hathaway.

Of course, paying a big tax bill means you earned a lot of money for your investors. For Berkshire Hathaway, though, much of those earnings came in the form of capital gains on the sale of publicly traded equities. In total, Buffett and his fellow portfolio managers sold $143 billion worth of stock from Berkshire’s portfolio. That resulted in $101.1 billion in taxable gains, dwarfing any amount the company realized in the past as well as its normal operating income.

The fourth quarter saw Buffett sell off significant chunks of his stakes in financial stocks including Bank of America and Citigroup. At the same time, he’s piled any cash leftover after Berkshire’s massive tax bill into one high-yield investment.

Here’s what investors need to know.

Image source: The Motley Fool.

Financial stocks are on the chopping block at Berkshire

Over the course of 2024, Buffett sold at least a few shares of roughly half the stocks and ETFs Berkshire held at the start of the year. Apple saw the biggest cut in the portfolio, but Berkshire’s stake in the tech stock still remains its largest overall position. After culling over two-thirds of its holdings, Berkshire seems happy to hold on to its remaining 300 million shares. He didn’t sell any more Apple stock in the fourth quarter.

Instead, he turned his attention to Berkshire’s financial stocks. Bank of America and Citigroup saw, by far, the largest cuts. But Berkshire also trim its stake in Capital One Financial and Brazilian fintech stock Nu Holdings.

Berkshire originally acquired Bank of America stock through warrants it received when it acquired $5 billion worth of preferred stock in 2011. Buffett exercised those warrants in 2017 to buy 700 million shares, when Bank of America increased its dividend such that owning the common stock paid more than holding the preferred shares. Berskshire Hathaway added to the position through 2020, but as of the end of 2024, it now holds less than the 700 million shares originally purchased in 2017.

Some have speculated that Berkshire continued selling Bank of America at the start of 2025. The company’s name was noticeably absent in a short list of “profitable businesses with household names” Buffett laid out in his letter to shareholders.

Berkshire’s position in Citigroup is relatively new, acquiring it in early 2022. The financial stock languished in 2022 and 2023 as it faced consent orders from regulators, started a major restructuring effort, and faced a challenging economic environment at the same time. Buffett and hist team may have been unimpressed by the progress in Citi’s turnaround and decided to start cutting it.

Buffett has suggested 2024 and 2025 are a great time to start selling some of Berkshire’s biggest holdings. Not only are many of the biggest companies in the market expensive in terms of valuation, but Berkshire can also keep more of the earnings because of historically low tax rates. Berkshire’s $101 billion in gains incurred only a 21% tax in 2024. Before 2017, those gains would’ve incurred 35% taxes. That’s an extra $14 billion lining Berkshire’s coffers.

Buffett may continue to sell in 2025 as valuations remain high and Congress has yet to extend the current tax cuts beyond the end of the year. As of the end of 2024, Berkshire’s portfolio was valued at $271.6 billion with unrealized capital gains of $196 billion. If he continues to sell, he clearly has a favorite place to put that cash right now.

The massive investment Buffett can’t stop buying

While Berkshire sold about $143 billion worth of equities in 2024, its total stock purchases amounted to just $9.2 billion for the year. Buffett and his team haven’t bought much else that shows up outside of Berkshire’s portfolio of public equities, either. The CEO stopped repurchasing Berkshire shares in May, and it invested limited amounts of money in nonmarketable equities, such as stakes in Pilot Travel Centers and Berkshire Hathaway Energy.

Without any good equity investments to buy, Buffett has a big pile of cash on his hands.

The best thing he can do with that cash right now, in his opinion, is to buy short-term U.S. Treasury bills. Buffett favors short-term government bonds as a place to keep excess capital. Every quarter he writes to shareholders, “We continue to believe that maintaining ample liquidity is paramount and we insist on safety over yield with respect to short-term investments.”

Buffett was burned by long-term bonds in the 1970s and has favored short-term bonds ever since. Short-term bonds typically have lower yields, but they ensure capital preservation, since they’re not as susceptible to interest rate risk of the kind we saw in the 1970s, as well as in recent years.

Buffett increased Berkshire’s Treasury bill holdings by over $166 billion in 2024. Despite his insistence on short-term bills, Buffett is currently receiving a substantial yield on those Treasury bills. T-bills maturing within six months currently offer yields on par with 10-year Treasury notes — around 4.3%, as of this writing. As a result, Berkshire is getting paid handsomely while Buffett waits for an appealing equity investment.

But Buffett has said that he would be happy to hold Treasuries even if they didn’t offer such attractive yields. Speaking at last year’s shareholder meeting, he said, “I don’t think anyone up here has any idea how to use [the cash] effectively, and therefore we don’t use it.”

Buffett and the team at Berkshire Hathaway face a unique challenge: With over $334 billion of investable capital, only a handful of stocks remain viable candidates to move the needle for Berkshire’s portfolio. Buffett’s preference over the past year, and last quarter especially, leaned toward smaller companies. But even investing a few billion dollars in those stocks, buying substantial stakes of all of them, can hardly offset sales of the giant companies Buffett has decided aren’t worth holding at today’s prices.

As such, Buffett piled money into Treasury bills and will probably continue to do so in 2025 until megacap stocks, in which Buffett can really make moves, start presenting good value to shareholders again.