Is Warren Buffett Going to Do Anything With $150 Billion?

Thu Feb 22 2024
Rajesh Sharma (2047 articles)
Is Warren Buffett Going to Do Anything With $150 Billion?

Warren Buffett’s Berkshire Hathaway keeps amassing more and more wealth.

With a record high of $157.2 billion at the end of September, Berkshire’s cash and equivalents total has been steadily rising for five consecutive quarters. When the Omaha, Nebraska, corporation delivers its annual report on Saturday, investors will be hoping to learn if it achieved new heights by the end of 2023.

Fans will pore over the accompanying letter to learn more about the famous investor’s intentions with the funds and his outlook on the market and economy. Many are particularly interested in reading Buffett’s thoughts on Charlie Munger, his lifelong companion and friend who passed away on November 28th, and his life and work.

An update on Berkshire’s stock market activity was provided to investors when the firm said it had reduced its holdings in Apple during the last quarter while increasing its holdings in Chevron and Occidental Petroleum.

Unsolved mystery: Berkshire Hathaway requested private treatment from the SEC for one or more holdings that were not disclosed in its public 13F filing for the second consecutive quarter. If institutional investors believe that reporting a holding would expose a program of continuous security purchasing or selling, they can petition the SEC to keep the holding hidden. At the outset, investors have the option to request a year of confidentially from the SEC.

Due to a rise in the company’s cost base for stock investments in the category of banks, insurance, and finance in the third quarter, some analysts have speculated that Berkshire bought a financial stock.

With his mountain of wealth on hand, Buffett is ready to seize any promising business opportunity that comes his way. The Berkshire empire already includes Dairy Queen, BNSF Railway, and insurer Geico. Additionally, the cash aids in preserving Berkshire’s “Gibraltar-like financial position,” as Buffett put it in a letter to shareholders in February 2009.

Since higher rates indicate that money is earning significantly more than in the recent past, many shareholders say they aren’t worried about the large amount of investment firepower sitting in cash.

On September 30th, Berkshire has over $125 billion invested in short-term U.S. Treasury bills. Raising interest rates in an effort to rein in inflation caused yields on such short-term government debt to skyrocket. One example is the yield on six-month Treasury bills, which increased from 0.64% in February 2022 to 5.33% this week, as reported by Tradeweb ICE.

Glenview Trust in Louisville, Ky., which holds Berkshire shares, employs Bill Stone as its chief investment officer. “A while back, when you could only earn zero, the cost of holding that cash seemed like it was high,” Stone noted. “Well, it’s inevitable that it will increase profits significantly.”

Interest and other investment income for Berkshire’s insurance operations reached $4.2 billion in the first nine months of 2023, up from $790 million in the corresponding period of 2022. The company reported the increase in its third-quarter report, stating that the primary cause was the rise in short-term interest rates.

At last year’s annual meeting, when asked about the cash’s prospects, Buffett admitted to having higher ambitions.

His goal was to acquire “great businesses,” he declared. “We are capable of purchasing a company for $50 billion, $75 billion, or $100 billion.”

Companies like Estée Lauder, Marriott International, CVS Health, and Chipotle Mexican Grill all have market valuations in the six figures. The acquisition of a publicly traded company, according to Buffett, is a complex and time-consuming procedure.

“Working with a private company would be easier,” he remarked. Not many of them are large either. However, when the conditions are right, no one else can close a transaction quite like we can.

According to Berkshire’s most recent quarterly report, the corporation sold stocks net during the first nine months of 2023. The S&P 500 rose 12% from January to September, and then surged 24% in the last quarter, bringing its annual gain to 24%.

The firm did have one favorite stock, though: its own. During the first nine months of 2018, Berkshire repurchased almost $7 billion worth of shares. On Wednesday, the stock prices of both Class A and Class B reached new highs. While the S&P 500 index rose 4.4% in 2024, Class B shares rose 15%.

Most investors look at Berkshire’s war chest as a potential opportunity.

“Berkshire has such a good track record at allocating capital wisely,” remarked James Armstrong, head of the Pittsburgh-based money-management office Henry H. Armstrong Associates. I believe being impatient is a poor choice. Their patience allows them to wait for a good stock or firm to go on sale, which is one of their strengths.

Financial stability at Berkshire has been a theme in Buffett’s writings about the importance of Berkshire. He informed shareholders in February 2022 that he and Munger had promised that Berkshire, excluding BNSF and Berkshire Hathaway Energy, would maintain a cash and equivalents balance of over $30 billion at all times.

Some outsiders have pointed out that the corporation needs a lot of money for purposes other than investing. Risky business is a part of Berkshire’s insurance operations.

Hurricane Irma in Florida might cause a loss of $15 billion, according to Ajit Jain, director of Berkshire’s insurance operations, who made the statement during the May annual meeting. In contrast, he said that a loss of zero would result in a profit of several billion dollars.

“They wouldn’t need to hold such a huge amount of cash if it weren’t for the insurance business,” said Darren Pollock of Cheviot Value Management in Beverly Hills, Calif. “Those events will require them to be well-prepared. A large portion of those billions of dollars are sitting there because of that.

Rajesh Sharma

Rajesh Sharma

Rajesh Sharma is Correspondent for Stock Market of South East Asia based in Mumbai. He has been covering Asian markets for more than 5 years.