Analysis of Berkshire Hathaway’s Cash Pile

Analysis of Berkshire Hathaway’s Cash Pile

Berkshire Hathaway, the conglomerate led by Warren Buffett, has seen its cash pile swell to a record $276.9 billion in the last quarter. This represents a significant increase from the previous record of $189 billion set in the first quarter of 2024. The increase in cash holdings comes as Berkshire has been selling off large portions of its stock holdings, including shares of tech giant Apple.

Selling of Equities

Warren Buffett, known as the Oracle of Omaha, has been a seller of stocks for seven consecutive quarters. However, the selling has accelerated in the last period, with Buffett shedding more than $75 billion in equities in the second quarter alone. This brings the total amount of stocks sold in the first half of 2024 to over $90 billion. Berkshire’s selling spree continued into the third quarter, with the company trimming its second-largest stake in Bank of America over 12 consecutive days.

Operating Earnings Jump

Despite the selling of stocks, Berkshire Hathaway’s operating earnings saw a significant jump in the second quarter. Operating earnings, which include profits from the conglomerate’s fully-owned businesses, totaled $11.6 billion in the second quarter, a 15% increase from the previous year. The boost in earnings was primarily driven by the strength in auto insurer Geico.

Warren Buffett, who is nearing 94 years of age, expressed caution about deploying capital in the current market environment. He mentioned at Berkshire’s annual meeting in May that high prices are giving him pause when it comes to making new investments. Buffett emphasized the importance of only investing in opportunities with low risk and high potential returns. Despite expressing a willingness to deploy capital, Buffett noted that current market conditions are not attractive for new investments.

Berkshire Hathaway bought back only $345 million worth of its own stock in the second quarter, a significant decrease from the $2 billion repurchased in each of the prior two quarters. This reduction in stock buybacks reflects Buffett’s cautious approach to deploying capital in the current market environment.

Market Concerns

Investors have been betting on the Federal Reserve’s ability to lower inflation with higher interest rates while avoiding an economic recession. The S&P 500 has surged to record levels, with a 12% increase in 2024. However, recent weak economic data, including a disappointing jobs report, has raised concerns about a slowing economy. The technology sector, which has been a major driver of the bull market, has also faced scrutiny over valuation concerns.

Business Performance

Geico, Berkshire Hathaway’s auto insurer, reported nearly $1.8 billion in underwriting earnings before taxes in the second quarter, a significant increase from the previous year. However, Berkshire Hathaway Energy’s utility business saw a decline in earnings to $326 million, attributed to potential wildfire liability pressure. BNSF Railway reported $1.6 billion in profits, consistent with the prior year’s performance.

Net Earnings

Berkshire Hathaway’s net earnings, which include short-term investment gains or losses, declined to $30.3 billion in the second quarter from $35.9 billion a year ago. Despite the decrease in net earnings, Berkshire Hathaway’s strong cash position and diverse business holdings continue to position the conglomerate for long-term success.

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