Berkshire Hathaway: Buy, Sell or Hold?

Berkshire Hathaway (BRK.A 1.24%) (BRK.B 1.40%) recently released its quarterly earnings report, revealing that the conglomerate holding company had a record $277 billion in cash and cash equivalents at the end of the second quarter of 2024. This huge cash position has sparked curiosity in among investors, particularly as to why Chairman and CEO Warren Buffett is hoarding it.

So let’s examine how Berkshire built its impressive cash hoard and what Buffett might have planned for it to determine whether it’s time to buy, sell or hold these top stocks.

How Warren Buffett Built Berkshire’s Cash Stock

Before we get into Berkshire’s quarterly report, it’s important to establish how and why it has so much money. As a holding company, Berkshire owns a majority stake in more than 60 businesses, from insurance companies like Geico to household names like Dairy Queen and See’s Candies.

Berkshire collects upfront premiums for its insurance businesses, such as Alleghany Corporation and Geico, to invest. That money, known as float, has helped Berkshire build its impressive stock portfolio, which now has about 40 stocks worth about $300 billion.

Notably, Berkshire was a net seller of shares in 2024. Combined with its strong operating earnings in the first half of 2024, which were $22.8 billion, up 26% year-over-year, cash and cash equivalents increased. As of June 30, Berkshire’s cash and cash equivalents exceeded the market capitalization of companies such as Advanced microdevices and Pepsico.

Here’s what Buffett is doing with Berkshire’s money

Buffett’s cash strategy is likely driven in part by the attractive yields — as high as 5.4 percent — currently offered by Treasury bills, the short-term securities issued by the U.S. Treasury with maturities of one year or Less. In its latest quarterly earnings report, Berkshire Hathaway disclosed that it holds $237.6 billion in Treasury bills, surpassing the $195.3 billion held by the US Federal Reserve as of July 31 this year.

In the past, Buffett has pointed out that T-bills serve as Berkshire’s preferred position for the company’s cash when it “can’t find anything interesting to invest in,” citing their safety and liquidity as advantages.

Estimating the potential interest income from T-bills, Berkshire could earn nearly $12 billion over the next 12 months, assuming a 5% yield, with little or no risk.

Given the U.S. government’s fiscal history, the primary risk for T-bills is losing money to inflation. Buffett once wrote in an annual letter to shareholders: “However, over the long term, (Treasury bills) are riskier investments — much riskier investments — than broadly diversified stock portfolios that are bought over time. However, with the current 12-month US inflation rate at 2.97%, the near-term risk to Treasuries appears minimal.

US Inflation Rate Data by YCharts.

What else could Buffett do with Berkshire’s money?

Because Buffett views Treasuries as a long-term risk, it’s unlikely he’ll still hold $237.6 billion of them. Berkshire has a long history of acquisitions, the most recent being the last 20 percent of Pilot Flying J, a chain of truck stops, for $13.6 billion over several years. Before that, Berkshire acquired the aforementioned insurer Alleghany Corporation for about $11.6 billion in 2022.

Alternatively, Buffett could return capital to Berkshire shareholders through dividends and share buybacks. Despite his fondness for dividend-paying stocks in Berkshire’s stock portfolio, he has never issued one to Berkshire shareholders, leaving that option unlikely. Buffett favors buying back shares at inflated prices and has bought back nearly 12 percent of Berkshire’s outstanding shares over the past five years. By repurchasing shares, existing shareholders see an increase in their Berkshire ownership without buying additional shares.

BRK.B Shares data outstanding by YCharts.

No matter what Buffett or his investment managers decide to do with Berkshire’s cash pile over the long term, the company will always hold a minimum of $30 billion in cash and cash equivalents. That’s because, beyond his responsibility as an insurer, Buffett has promised “extreme fiscal conservatism” to his shareholders.

Buffett wrote in his most recent annual letter to shareholders: “In most years — indeed most decades — our prudence will likely prove to be futile behavior — akin to an insurance policy on a fortress-like building about which is believed to be fireproof. Berkshire does not want to cause permanent financial damage.”

Is Berkshire Hathaway stock a buy?

Berkshire Hathaway’s shares are up about 21% in 2024 and have generated an unparalleled compound annual gain of 19.8% since 1965, when Buffett took over. Some might argue that Buffett is being overly cautious with Berkshire’s cash reserves. However, this approach strategically positions the company to take advantage of a market downturn, making Berkshire an ideal choice for investors seeking a hedge against such risks.