With the S&P 500 ticking up, up, up to record highs, Warren Buffett’s Berkshire Hathaway has amassed a massive mountain of cash, $128 billion to be exact, during the third quarter as the Oracle of Omaha has struggled to find value investments.
Buffett and his partner, Charlie Munger, have had no luck completing a major acquisition in nearly four years and the company’s cash and short-term Treasury holdings have pushed its cash on hand up from $122 billion during the second quarter of 2019, the company said Saturday during its third-quarter earnings report.
Smead Capital Management CEO Bill Smead told Financial Times the duo of Buffett and Munger could be building the “monstrous cash hoard in the event Buffett or Munger — the masterminds of Berkshire — go into the hospital.”
Buffett is 89 years old and Munger is 95.
Smead said the investing dynamic duo also could be waiting to spend some money when and if the market suddenly turns bearish a la the 1987 crash.
While they haven’t found any major companies to buy in on, their vast business empire is racking up record profits akin to $7.8 billion during the third quarter, a 14% bump year over year.
And when you add in the gains from their investment holdings, which of course fluctuate with the market, their overall profits soar to $16.5 billion, down a bit year over year after they netted $18.5 billion the same quarter in 2018.
“These are very strong results reflective of a strong domestic economy despite all of these challenges,” Edward Jones analyst Jim Shanahan told Financial Times, adding that most of their profits came from strong results from their railroad, utilities and insurance companies.
Berkshire also bought back about $700 million of its own stock, raising their total yearly buybacks to $2.8 billion — though company shareholders are frustrated they haven’t bought back more of their own stocks after changing their buyback policy last year.
Berkshire also has massive holdings in financial companies including American Express and Wells Fargo. Apple is now the largest holding at Berkshire, which bought into the cellphone and computer giant in 2017. Fourth-quarter gains have pushed Berkshire’s Apple valuation to $65 billion, adding $25 billion this year alone.
Buffett sent his annual letter to shareholders, noting “sky-high” prices meant spending the excess cash in a large deal wouldn’t be the right play.
“That disappointing reality means that 2019 will likely see us again expanding our holdings of marketable equities,” he wrote. “We continue, nevertheless, to hope for an elephant-sized acquisition.”
