How Much Of Berkshire Hathaway Is Cash?

While much attention this week has focused on Berkshire Hathaway’s enormous cash pile totaling $276.9 billion, another number is arguably the one that investors should focus on. And that’s the amount of interest Buffett’s holding company is accumulating with each passing day.

In interviews previously, Warren Buffett has stated that he favors 3-month and 6-month Treasury bills as the place to park cash. They have been yielding as much as 5.40% in recent months but for simple math it’s fair to say Berkshire is earning approximately 5% annually.

Not all of Berkshire’s $276.9 is invested in short-term bills, but most of it is – a full $234.6 billion. At a 5% rate of return, that sum is growing by almost $1 billion monthly.

For perspective, Berkshire held $31.2 billion of cash on its balance sheet in Q2 2008 before deploying about $5 billion in the form of preferred shares of Goldman Sachs.

So Berkshire is not amassing more cash every 3 months than the sum total of its balance sheet liquid reserves during the Great Recession. But why does this matter?

3 Reasons Why Buffett’s Cash Pile Matters

Buffett has famously followed his own advice to not merely be greedy when others are fearful but to do so in a big way. In other words, when he sees a deal he is willing to allocate substantial capital reserves to pounce on it. 

In 2016, for example, when he started to accumulate a position in Apple that ended up as a 789 million share holding. the stake was at one point worth about 50% of his entire equity portfolio.

That level of conviction revealed Buffett is willing to invest massively when a deal finally appears. At the time, Apple’s price-to-earnings ratio sat below 15, making it an enticing buy given its growth rates and cash flows.

Similarly, in 2008 when he snapped up Goldman Sachs preferred shares, the position represented a relatively large percentage of his overall balance sheet cash.

So, the first takeaway as to why Buffett’s cash pile matters is that it provides the Oracle of Omaha with the optionality to make big purchases and deploy capital fast when he spots his next opportunity.

If the bearish train gathers steam like it did in 2008, Buffett will have the ample reserves needed to swoop in and snap up undervalued assets. Better yet, he can do so with cash versus equity, which is likely to be more costly over the long-term.

Another key reason it matters is it allows Buffett the opportunity to pursue further share buybacks that return value to shareholders. Since 2018, Buffett has spent $78 billion repurchasing Berkshire stock. 

While much attention shone on how much Buffett had spent on Apple shares, it turned out that he spent even more buying back shares of his own company, which reflected his confidence in its future prospects and the discrepancy he saw in its price relative to fair value.

Finally, growing economic uncertainties mean that Berkshire Hathaway will have ample reserves that can act as a buffer against market volatility. When the Great Recession gripped the economy and markets, Berkshire stood firm as the beacon of stability and Buffett’s swift actions were widely credited as shoring up confidence among investors.

So too will Berkshire’s deep reserves act as a fortress to defend and insulate Berkshire Hathaway from any economic downturns to come.

How Much Of Berkshire Hathaway Is Cash?

Berkshire Hathaway’s market capitalization is $920 billion of which $276.9 billion is cash, representing 30%.

Berkshire Hathaway’s cash fortress alone is arguably reason enough to buy the stock given that it is expected to produce about $1 billion monthly but there is much more to like than that. Berkshire is also a cash flow machine that reported a full $9.06 billion in free cash flows last quarter alone.

Plus, it’s trading at almost the exact same price-to-earnings multiple of 13x that Apple traded at when Buffett was snapping it up back in 2016.

In short, Berkshire’s operations are producing monstrous cash flows, it has a fortress cash pile that ensures stability in the face of economic hardship, and it’s trading at a compelling price relative to future earnings. 

So, if you held that punchcard Buffett has so famously discussed in the past and could use just one of your 20 punches to buy any stock, Berkshire Hathaway is perhaps as good a choice as any.

---

The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.