Berkshire Hoards $331B in Cash—Don’t Read Too Much Into It

I think investors are reading too much into Berkshire Hathaway’s growing cash pile, suggesting that Buffett is bearish or that the stock market is in a bubble.

One must understand that Buffett has never claimed the ability to predict where markets are heading. He’s more of a bottom-up investor, looking for good businesses to buy at fair prices.

Moreover, it’s not as though he isn’t buying stocks at all. In the last quarter, Berkshire bought more than a billion dollars’ worth of Constellation Brands (STZ) and added almost half a billion to Domino’s, alongside four other smaller buys.

In his annual shareholder letter, he addressed this explicitly—likely because he was tired of the speculation:

“Despite what some commentators currently view as an extraordinary cash position at Berkshire, the great majority of your money remains in equities. That preference won’t change. While our ownership in marketable equities moved downward last year from $354 billion to $272 billion, the value of our non-quoted controlled equities increased somewhat and remains far greater than the value of the marketable portfolio.”

Most investors focus on Berkshire’s marketable securities, which are publicly traded stocks (like Apple, Coca-Cola, and American Express). These are well-known names and easier for investors to buy, whereas private equity has more barriers. But Berkshire also has many large, privately owned companies—GEICO, Berkshire Hathaway Energy, and BNSF Railway, for example. In fact, it’s a diversified portfolio that includes Brooks running shoes, Dairy Queen (F&B), Duracell batteries, Forest River recreational vehicles, Borsheim’s Fine Jewelry, and more. Altogether, Buffett has reported 189 subsidiaries!

Curious whether Berkshire’s private equities outweigh its public ones, I did some digging. Berkshire doesn’t provide a valuation of its private businesses, so I used a proxy: taking total equity and subtracting marketable securities. While it’s likely the private businesses would fetch more than book value if sold, this simple comparison shows that in 2024, the private book value exceeds the public equity. Buffett has also mentioned that he has no preference for private or public businesses, as long as they’re outstanding from an investment standpoint.

Investors should remember Buffett remains very much an equity investor, focusing on operating profits rather than the stock market’s day-to-day fluctuations. Too often, investors fixate on market swings while forgetting business fundamentals.

Buffett also emphasized he continues to favor equity over cash, noting that even government bonds aren’t good long-term investments:

“Berkshire will never prefer ownership of cash-equivalent assets over the ownership of good businesses, whether controlled or only partially owned.”

“Paper money can see its value evaporate if fiscal folly prevails. In some countries, this reckless practice has become habitual, and, in our country’s short history, the U.S. has come close to the edge. Fixed-coupon bonds provide no protection against runaway currency.”

He highlighted his intention to increase Berkshire’s stakes in five Japanese companies—ITOCHU, Marubeni, Mitsubishi, Mitsui, and Sumitomo—after reaching an agreement with their management. This shows that Berkshire does want to invest its cash, but there are certain challenges and limits:

“From the start, we also agreed to keep Berkshire’s holdings below 10% of each company’s shares. But, as we approached this limit, the five companies agreed to moderately relax the ceiling. Over time, you will likely see Berkshire’s ownership of all five increase somewhat.”

Lastly, Buffett acknowledges that Berkshire’s size prevents it from buying and selling quickly without affecting share prices, sometimes taking years to build or exit positions. Private companies are even more rarely sold, so Berkshire must be very stringent with its criteria:

“Berkshire’s present size, it should be underscored, diminishes this valuable option. We can’t come and go on a dime. Sometimes a year or more is required to establish or divest an investment. Additionally, with ownership of minority positions we can’t change management if that action is needed or control what is done with capital flows if we are unhappy with the decisions being made.

With controlled companies, we can dictate these decisions, but we have far less flexibility in the disposition of mistakes. In reality, Berkshire almost never sells controlled businesses unless we face what we believe to be unending problems.”

Hopefully, investors can see the bigger picture and stop using Berkshire’s growing cash pile as an indication of a looming market crash.