Warren Buffett was in the news this week for the only reason Warren Buffett’s ever in the news: Money.
Specifically, this was the week when Buffett’s hedge fund — sorry, his “conglomerate” — became the first non-tech company in the US to command a $1 trillion valuation.
Whether that matters to you depends on two things: If you’re a Buffett fanatic and if you think money’s the be-all, end-all. I check neither of those boxes, which is why I only dedicated a few short paragraphs to Berkshire’s meaningless market cap milestone.
What’s not entirely meaningless, though, is Berkshire’s cash pile which, most readers will recall, hit a record at nearly $277 billion at the end of Q2.
Although a relatively lackluster US jobs report and a destabilized yen carry trade took the blame for the early-August market swoon, news of Buffett’s stock sales (i.e., the source of the enormous increase in Berkshire’s cash holdings) was insult to injury for fragile sentiment. “Remain calm,” I joked, on August 4, while documenting Warren’s $75 billion of net selling, including a huge chunk of Apple. Calm investors most assuredly weren’t. A few hours later, the Nikkei plunged 12% in its worst one-day decline since 1987.
Anyway, while putting the finishing touches on the new Monthly Letter (I’ll publish it tomorrow evening as Friday night reading), I was reminded that Black households in America own just $286 billion of stocks and mutual fund shares between them. Which means… well, behold:
Warren Buffett, through Berkshire, could theoretically buy nearly every single stock and mutual fund share currently owned by Black America. In cash.
Is that a meaningless statistic? Apples to oranges, so to speak? Yes. In some sense, yes.
But in another, very important sense, it speaks to everything that’s wrong with American capitalism and, indeed, everything that’s wrong with America itself.
I agree that market caps are essentially meaningless. They are not money available to the company and are not reflected on a company’s balance sheet. They are just the reflection of the collective madness of “Mr. Market.” It is interesting that BRK has hit a trillion in market cap because at about the time of the recent annual meaning, Mr. Buffet announced that “his” company boasts the highest book net worth of any company in the world, as reflected in its certified balance sheet. BRK’s net worth has reached, wait for it, a trillion dollars. It makes up ~7% of the book value of all the members of the S&P 500. So this means that BRK currently enjoys a 1:1 price to net worth ratio. Few other companies achieve exact parity between market cap and net book value. I suspect most investors would respond to this situation with a loud “meh.” To them that makes BRK just a giant “Dad” company. I suspect Buffett thinks this is way cool (me, too).