Berkshire Hathaway’s Q3 2021 quarterly report revealed a new record of $149.2 billion in cash that Warren Buffett is sitting on! I believe he’s biding his time until stocks go on sale during the next economic storm!
The reason why I think Buffett is getting his washtub full of cash ready for when it’s raining gold (ie stocks) is because Berkshire tends to bulk up its cash reserves leading up to a market meltdown. The current cash pile increased by $5.1 billion above the $144.1 billion in Q2 2021.
In 2007, Berkshire had $46 billion that Buffett was able to put to work during the Great Financial Crisis aka Great Recession.
Another clue is that Berkshire has been a net seller of equities for four quarters in a row, a trend we haven’t seen since 2008.
So far in Q3 2021, Berkshire sold $2 billion of stocks, and total sold was $7 billion in the first 9 months of 2021. This compares to $8 billion net sold in 2020.
While Berkshire isn’t buying back many other companies’ stocks, it is buying back its own stock to the tune of $7.6 billion in Q3 2021. This is in addition to Berkshire repurchasing $6 billion in Q2 2021, and $6.6 billion in Q1 2021.
According to a Barron’s article, Berkshire repurchased $1.8 billion in October 2021, and if they continue this buyback trend through the end of Q4 2021, the total they might buy back is $5.4 billion in the last quarter of 2021.
This would all potentially add up to $25.6 billion repurchased in 2021, compared to $24.7 billion in 2020.
Unlike many CEOs, Buffett insists that Berkshire may only buyback its stock if Berkshire is trading at below its “intrinsic value, conservatively determined” as the 10-Q quarterly report indicates.
Buffett also likes to keep a substantial cash cushion where it had been $20 billion in Q1 2021, and starting in Q2 2021 it went up to $30 billion. This means that Berkshire will not repurchase its common stock if Berkshire’s cash, cash equivalents, and US Treasury Bill holdings go beneath $30 billion.
It could be argued that Berkshire is using its cash in a productive way since as Berkshire is retiring shares in its buyback program, it is also continuing to increase its cash reserves. It wouldn’t be good if Berkshire’s cash was either stabilizing or decreasing.
I cite a New York Times article that asserted Berkshire’s profit fell in the third quarter due to market turmoil and economic slowdown in the US. I don’t think there was much market turmoil in Q3 as the S&P 500 seemed relatively flat, changing only 0.3% from the beginning through end of the quarter.
But the economy did seem to slow down where Q3’s GDP growth was only 2% compared with Q2’s GDP growth of 6.7%.
Berkshire’s operating earnings increased by 19% to almost $6.5 billion according to my calculations judging by Berkshire’s insurance investment income, railroad, utilities & energy, and manufacturing, service, and retailing and other business lines. This is better than Q3 2020’s $5.4 billion in operating earnings, but it wasn’t as good as Q3 2019 or Q3 2018. But at least it’s trending up again.
Their insurance business suffered after-tax losses of $784 million in the third quarter, primarily resulting from significant catastrophes throughout 2021 including Hurricane Ida, massive flooding in Europe, and Winter Storm Uri. They had after-tax incurred losses from significant catastrophe events of $1.7 billion in Q3 2021. GEICO also suffered losses from more drivers getting back onto the roads in commuting to work again.
The Barrons article I cite suggests that Buffett isn’t doing anything and that he failed to capitalize on opportunities during the 2020 market cratering. However, I believe that Buffett is being very intentional with holding onto his war chest of cash so he can deploy it when more legit opportunities present themselves.
IMHO, Buffett is hunkering down, waiting for the “big one,” potentially an economic storm unlike one we’ve ever seen, at least not in my lifetime. For both Buffett’s and my sake, I hope it will prove to be a prudent move to be holding onto so much cash. Only time will tell!
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