When the Oracle of Omaha speaks, the markets listen. That’s particularly true at the recent annual Berkshire Hathaway meeting, where a reported 18,000 investors rolled in to hear what the CEO said. Of particular interest: Berkshire Hathaway is sitting on a $182 billion pile of cash, apparently reflecting Buffett’s hesitation about opportunities in the current market — and possibly saying a lot about the economy as a whole.
On the Agenda: First Quarter Earnings
According to Forbes, Buffett began by briefly reviewing Berkshire’s first-quarter earnings: operating earnings exceeded the previous year’s by nearly 40 percent. That gave Berkshire Hathaway a solid start to the year and helped influence the general tone of the meeting. Buffett also noted that he believes operating earnings are the “most descriptive” way to analyze Berkshire’s success since it removes the effects of the stock market’s short term volatility.
He also pointed out that holding cash meant access to higher interest yields, which could drive up investment income for the company. He sees this trend continuing over the year and he’ll be hoping this will keep Berkshire’s investment income strong for some time. But even with that buoy in place, Buffett said not to “multiply the insurance earnings by four,” referring to the basic arithmetic for predicting what a quarter might mean for the entire year.
Taking a Chunk Out of Berkshire’s Apple Stock?
Buffett has been famously bullish on Apple for years, regarding it as a rock-solid company with a tremendous upside. Much of Berkshire’s success in recent years is even due to its substantial holdings in Apple. But even that support isn’t unconditional.
The event highlighted how Berkshire had been a net seller of over $17 billion in publicly traded stocks, with most of that money coming from sales of Apple and Chevron. Thanks to the high earnings and the recent stock sales, Berkshire’s pile of cash has turned to $182 billion. Buffett said it could go even higher, perhaps to $200 billion before the end of the second quarter. Of particular interest was Buffet’s answer to the question as to why he hasn’t invested the cash.
“I don’t think anyone sitting at this table has any idea how to use it effectively,” said Buffett,” and therefore we don’t use it. We only swing at pitches we like.”
The Future of Berkshire Hathaway
With the passing of late chairman and longtime Buffett friend Charlie Munger, there’s a question about who Buffett’s successor will be. Buffett also addressed the future of Berkshire management by saying that the first goal would be to increase operating earnings — even in the wake of a successful quarter. Buffett also sees a priority in decreasing the number of outstanding shares, this boosting Berkshire’s earnings per share.
Buffett also sees the potential for “hope for a … big opportunity.” Such an opportunity would let Berkshire Hathaway flex its muscles and put its substantial cash hoard to use. Currently the vision is to let the board of Berkshire Hathaway pick the successor to Buffett, even with Greg Abel ostensibly in line to take over as chairman and CEO. But Buffett also said that the decision is ultimately out of his hands — as he’d be gone. Berkshire Hathaway, with its substantial cash pile and increased earnings in Q1 2024, will not be going anywhere anytime soon.
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