Break out the Cherry Coke and peanut brittle, it’s Berkshire weekend! They always sneak up on me.
Warren Buffett’s conglomerate (don’t call it a hedge fund) ended the second quarter with more than $147 billion in cash, the second-most ever.
Q2 marked the fourth consecutive quarter during which Buffett’s cash pile rose. Suffice to say he’s unconcerned with Fitch’s opinion of America’s creditworthiness.
Earlier this week, in remarks to CNBC, Buffett dismissed Fitch’s downgrade, noting that Berkshire bought $10 billion in Treasurys on each of the last two Mondays. “The only question for next Monday is whether we will buy $10 billion in 3-month or 6-month” bills, he added.
Although long-end US yields jumped sharply amid the Fitch drama (which, unhappily for Janet Yellen, coincided with Treasury’s refunding announcement), there’s been no shortage of demand for the deluge of bill supply unleashed by the debt ceiling deal. You can count Buffett in. Berkshire will remain a buyer.
“There are some things people shouldn’t worry about,” he went on, referencing the downgrade in the same comments to CNBC. “This is one.”
Berkshire is another. Thing you shouldn’t worry about, I mean. Operating income was $10.04 billion. That was ahead of the $8 billion consensus, although “consensus,” “beats” and “misses” are largely irrelevant here. There were only two estimates.
Berkshire was a net seller of other stocks (i.e., stocks other than its own) for the third straight quarter.
Buybacks were around $1.4 billion during the period, bringing the YTD total to $5.8 billion. Repurchases accelerated in 2020 and 2021 amid an ostensible lack of attractive investments.
Recall that in this year’s annual letter, released in February and discussed at some length here, Buffett chided investment bankers for encouraging buybacks at prices that aren’t accretive, but he reserved his most barbed criticism for politicians. Anyone who tells you that “all repurchases are harmful to shareholders or to the country, or particularly beneficial to CEOs” is “either an economic illiterate or a silver-tongued demagogue,” he wrote.
Other notables from Berkshire’s Q2 results included a second straight profit for GEICO.
That business returned to profitability earlier this year after a half-dozen quarterly losses.
In May, at the shareholder carnival in Omaha, Buffett suggested profits across Berkshire’s businesses might drop in 2023.
To make the obvious joke, $147 billion invested in riskless cash yielding 5% is a nice cushion against lower earnings. The record for Berkshire’s cash pile was $149.198 billion in Q3 of 2021.
No mistake, BRK is the most successful conglomerate ever. Because it is a conglomerate its returns will always be somewhat constrained and growth will keep slowing because the number of available valuable targets will decline as the firm grows. I don’t own this because I know what’s next and because it pays no dividends for the here and now. However, this firm is truly a work of art that follows all the rules I taught my strategy students for over 35 years. Shame none of my colleagues understood anything about what the Oracle was doing. Certainly no economist does. In many ways Mr. Buffett reminds me of JP Morgan (way) back in the day. Morgan made his vast wealth available when significant business were in peril. Even when his country was in peril. Buffett has done the same more than once. The thing is, sadly, there will be no one to really replace him. I glad to have been able to see the whole thing unfold, affecting me personally more than once.
Great comment…..