A $150 Billion Question: What Will Warren Buffett Do With All That Cash?

ILLUSTRATION: ALEXANDRA CITRIN-SAFADI/WSJ; PHOTO: GETTY IMAGES, ISTOCK
ILLUSTRATION: ALEXANDRA CITRIN-SAFADI/WSJ; PHOTO: GETTY IMAGES, ISTOCK

Summary

Berkshire Hathaway’s annual report will show if its cash pile ended 2023 at another record high.

The mountain of cash at Warren Buffett’s Berkshire Hathaway just keeps growing.

Berkshire’s tally of cash and equivalents has marched skyward for five consecutive quarters, reaching a record $157.2 billion at the end of September. Whether it finished 2023 at new heights is one question investors will look to answer when the Omaha, Neb., company releases its annual report Saturday.

Followers will parse Buffett’s accompanying letter for any plans the famed investor might have for that money as well as his thoughts on the economy and markets. Many are also eager to read any reflections Buffett might share on the life and contributions of Charlie Munger, his longtime partner and friend who died Nov. 28.

Investors got their most recent look at Berkshire’s stock-market moves when the company disclosed it had trimmed its flagship position in Apple in the fourth quarter while boosting its stakes in Chevron and Occidental Petroleum.

Graphic: WSJ
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Graphic: WSJ

One tantalizing mystery: Berkshire wrote for a second consecutive quarter that it was requesting confidential treatment from the Securities and Exchange Commission for one or more holdings it omitted from its public 13F filing. One reason institutional investors can ask the SEC to keep a holding private is that disclosing it would reveal a continuing program of buying or selling a security. Investors can initially ask the SEC for confidentiality for up to one year.

Some observers have guessed that Berkshire bought a financial stock because of an increase in the third quarter in the company’s cost basis for stock investments in the category of banks, insurance and finance.

Meanwhile, the tower of cash leaves Buffett equipped to pounce should he spot an attractive business to add to the Berkshire empire, which includes insurer Geico, BNSF Railway and Dairy Queen. The cash also helps maintain what Buffett described in a February 2009 letter to shareholders as Berkshire’s “Gibraltar-like financial position."

Many shareholders say they aren’t worried that so much investing firepower is sitting in cash—especially since higher yields mean that money is earning much more than in the recent past.

Berkshire had more than $125 billion in short-term investments in U.S. Treasury bills on Sept. 30. Yields on such short-term government debt rocketed higher as the Federal Reserve raised interest rates in a bid to tame inflation. The yield on six-month Treasury bills, for example, was 5.33% this week, up from 0.64% in February 2022, according to Tradeweb ICE closes.

“A while back, when you could only earn zero, the cost of holding that cash seemed like it was high," said Bill Stone, chief investment officer at Glenview Trust in Louisville, Ky., which holds Berkshire shares. “Now of course we’re going to see it boost quite a bit of earnings."

Berkshire’s insurance operations had $4.2 billion in interest and other investment income in the first nine months of 2023, up from about $790 million in the same period in 2022. The increase was primarily because of a rise in short-term interest rates, the company said in its third-quarter report.

Still, Buffett admitted greater ambitions when asked at last year’s annual meeting about prospects for the cash.

“What we’d really like to do is buy great businesses," he said. “If we could buy a company for $50 billion or $75 billion, $100 billion, we could do it."

The S&P 500 has plenty of companies with such market values, ranging from Marriott International to CVS Health, Chipotle Mexican Grill to Estée Lauder. But Buffett described buying a public company as a difficult and lengthy process.

“It would be easier to do with a private company," he said. “And there aren’t very many that are big. On the other hand, there’s nobody else that can quite make a deal like we can, under the right circumstances."

Graphic: WSJ
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Graphic: WSJ

In the first nine months of 2023, Berkshire was a net seller of stocks, according to the company’s most recent quarterly report. The S&P 500 advanced 12% through September before a fourth-quarter rally propelled it to a gain of 24% for the year.

One stock the company did like: its own. Berkshire used about $7 billion to repurchase shares in the first three quarters of last year. Both Class A and Class B shares closed at records Wednesday. Class B shares are up 15% in 2024, compared with a gain of 4.4% for the S&P 500.

Shareholders tend to focus on the opportunity Berkshire’s war chest provides.

“Berkshire has such a good track record at allocating capital wisely," said James Armstrong, president of Henry H. Armstrong Associates, a money-management firm in Pittsburgh. “I think it’s a mistake to be impatient. The fact that they’re willing to wait for an attractive bargain on a good stock or a good company is one of their strengths."

Buffett has often written about the importance of Berkshire’s financial strength. In a February 2022 letter to shareholders, he wrote that he and Munger had pledged that Berkshire, along with its subsidiaries other than BNSF and Berkshire Hathaway Energy, would always hold more than $30 billion in cash and equivalents.

Some observers note that the company needs substantial cash for more than investing. Berkshire’s insurance operations include business that carries the risk of big losses.

Ajit Jain, who heads Berkshire’s insurance operations, said at the annual meeting in May that a hurricane in Florida could lead to a loss of as much as $15 billion. No loss, by contrast, would mean several billion dollars in profit, he said.

“If it wasn’t for the insurance business, they wouldn’t need to hold such a huge amount of cash," said Darren Pollock, portfolio manager at Cheviot Value Management in Beverly Hills, Calif. “They need to be prepared for those events. That’s a big reason why many of those billions of dollars are sitting there."

Write to Karen Langley at karen.langley@wsj.com

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