Berkshire Hathaway posts a 40% jump in operating earnings, cash pile of $157B
cnbc.com
cnbc.com
The introductory letter from Geico's division (of Berkshire Hathaway) tried to soften the blow of rates jumping 45% in just over three years... but I am about to drop down to liability only, and sell a vehicle to cover next few incurrence$.
Genuinely curious where you would rather that capital be allocated?
The counter arguments that I've seen (there may well be others) are either that it does see those opportunities, but not at this precise moment in time, so is keeping the cash for later. At the level of $156b, this seems a bit unlikely but hey maybe they have some great ideas in the pipeline.
The alternative is that they don't but aren't distributing it to shareholders, because of the tax implications of that distribution (and in general many corporations seem to favour buybacks rather than dividends for tax reasons), and they have some hope that those tax implications will change in the future (or their share price will fall, allowing for better buybacks), allowing them to then distribute the money in a way that benefits the shareholders more.
As https://www.reuters.com/article/us-berkshire-buffett-insuran... says, Buffett gives a 2%/year probability to a $400 billion mega-catastrophe that is likely to wipe out a good chunk of the insurance industry. If that happens, Berkshire Hathaway will be able to pay its share of the claims.
Add that to your thinking. Does maintaining a $150 billion reserve sound so crazy now?
My understanding of berkshire's business model was that they're heavily diversified, so that they're not as vulnerable to catastrophic loss from a single company/industry.
I tried to verify this by looking at the financial report that it is based on. Which may be found at https://www.berkshirehathaway.com/qtrly/3rdqtr23.pdf. Unfortunately the $157 billion figure quoted in the title does not appear anywhere in the report. But page 37 quotes the float as being approximately $167 billion at September 30, 2023. So I suspect that they are quoting the float, and have a typo. Though they might be doing a calculation off of some other numbers.
My claim about how they think about it can be verified on page 32.
"Our management views our insurance business as possessing two distinct activities – underwriting and investing. Underwriting decisions are the responsibility of the unit managers, while investing decisions are the responsibility of Berkshire’s Chairman and CEO, Warren E. Buffett, and Berkshire’s corporate investment managers. Accordingly, we evaluate the economic performance of underwriting operations without any allocation of investment income or investment gains and losses. We consider investment income as an integral component of our aggregate insurance operating results. However, we consider investment gains and losses, whether realized or unrealized, as non-operating. We believe that such gains and losses are not meaningful in understanding the quarterly or annual operating results of our insurance businesses."
A ways down the article says:
"The firm spent $1.1 billion to repurchase shares, bringing the nine-month total to approximately $7 billion."
So they are returning some of that to shareholders.
Efficient? Well, that's for you to decide.
Railroad investment seems like a far more long-term driver of everyday everyman quality of life than pop up companies that try to take our attention and suck down a $billion while failing to do so.
I'm saying I believe it is bad for pro-social ends and society and that we should be striking a better balance in ensuring we keep the money moving in a trickle up fashion if at all
VCs, and the Silicon Valley style culture in general, is a different investing culture than what Berkshire Hathaway is doing here. The underlying current of this discussion is which investing culture is better.
There's a lot of benefits to patiently waiting for an opportunity, rather than spending money as soon as it comes up. SV is surprisingly short-term in its thinking and culture. That's the lesson IMO for the past decade or two, SV is always about keeping up with your neighbors as opposed to thinking about the long term stuff that matters.
In the SV mindset, idle money is awful, you should have spent it on the latest-greatest recent whatever. 5 years ago that was maybe VR, 10 years ago maybe Internet of Things. Just 2 years ago it was cryptocurrency.
Guess what? If you spend your money on dumb things, you don't have money left over when the important revolutions happen. Patiently holding money is slower, but still valid form of investing.
You're looking at a literally $Trillion++ company. This $100B is literally pocketchange for a rainy day for them.
They've got the vast majority of their assets invested. Saving some money for later is more than just "patience", it also involves thinking about the overall picture of the company in question.
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In any case, "Cash" earns 5.25 to 5.5% right now (Federal Funds Rate), meaning all companies with a PE Ratio worse than 19 is a worse investment than cash.
And there's a _LOT_ of companies that have less than a PE Ratio of 19. EDIT: I'm not saying that they're always going to be a worse buy. But a $1 Billion company needs to make 0.0525 Billion/year to be comparable against cash right now, or at least make an argument why this next year of investment is worth more than the 52.5 million that could be easily obtained from a (state-tax free) 1Y Treasury.
When you have $450 B. in liabilities, $160B in cash suddenly doesn't look so big.
Depends on what you're optimizing for. If you're optimizing shareholder return, lets ask: do you think Berkshire Hathaway has delivered good shareholder returns for its investors? It has like 50 years of history now (?) so you can check whether or not it's efficient.
Tell me when to stop hehe
It does not have a revenue problem, it suffers from systemic inefficiency and misallocation problem. Most of the challenges are caused by self inflicted process, which cant be solved by throwing more money at( e.g. housing). The cost to feed every child is trivial, but not a priority. $5/day for the poorest 25% of schoolchildren nationally would be ~2 billion per year. California alone had a record budget surplus last year of 100 billion, and the US Federal gov is approaching that just for the war in Ukraine. The fed gifts 4 billion/year on Israel, and just passed a 15 billion dollar package.
Most of the reasons why there is low housing, Healthcare, or food isn't due to lack of capital investment.
If you ask something like why isn't Healthcare cheap and abundant, it isn't because nobody can make money and isn't due to lack of investment.
If you give everyone, $1000 to go to the doctor, guess what, doctors prices will just go up $1000.
The only thing that really makes a difference is expanding supply.
Its absolutely asinine that everything is so high-stakes where you may very well end-up with 10s-100s of thousands of dollars with no material benefit and we also expect people to pull the full weight of preparing them to hopefully one day help that same public. Like the whole current configuration needs to get fucked and get someone to radically restructure so irs not so stupid and debillitating.
Cash waiting to be deployed when you know there are better opportunities in the future has far more value than just distributing it as dividends, or worse, make bad investments and miss that better opportunities.
Edit: also who's saying this wouldn't be applied symmetrically across the market to the extent that it fundamentally moots the issue of any one specific player not being ready and liquid enough to pounce on the opportunity. If everyone rises or falls in turn, the abillity to engage in opportunities wouldn't appear to be fundamentally altered since the aggregate abillity to pay would be conserved in some sense, if only proportionally so)
2) Corporations absolutely should pay 0% taxes. Why do we tax entities that provide employment, innovate and provide goods and services? It's so backwards. The amount of time, money and resources spent by corporations avoiding taxes can be used for other productive purposes.
All taxes should be captured at an individual level.
Corporations should only be taxed for usage of non-renewable, public goods so that they are incentivized to optimize for that
Are you arguing it is inefficient or you don’t like the way capitalist democracies are structured? I can’t argue the latter as I agree with you, but the former is pretty objectively (over any period of time greater than a half decade) incorrect given their track record.
And if the concern is about society... It's 150b that berkshire has lent to the government, who is spending the money on things for society. If someone doesn't like the way the government are spending it, that's another issue.
Interesting times we live in.
Edit: Berkshire Hathaway's largest position is apple. PE of 30, or 3.3% of value, and take on some risk. Alternatively, you can purchase bonds at a 5.3% rate, and basically no risk. You will put your money in bonds unless you have a hot tip about apple sales. You might even sell some of your apple stock to buy more bonds.
Berkshire Hathaway's largest position is apple. PE of 30, or 3.3% of value, and take on some risk. Alternatively, you can purchase bonds at a 5.3% rate, and basically no risk. You will put your money in bonds unless you have a hot tip about apple sales. You might even sell some of your apple stock to buy more bonds.
If apple stock dropped 30%, then it still would yield less than risk free bonds.
Edit: Berkshire Hathaway earnings are up 40% because they are buying bonds, not selling more product.
I'm like maybe I missed something? Let's look at SPY, haven't done that in a month
- 3% off ATH - up 25% YoY - up 2% MoM - up 5% WoW
Shrug
Take a look at the 6 month. We're at the top of a 5 day dead-cat from the last dip right now. I'd put SPY at 420 for 11/10 if I were a gambling man.
Not saying we're headed for a "crash", but there is simply no case to be made for equities in the next 18 months if you are concerned with capital preservation.
Typically, growth stocks look expensive. Traditional 'Atom' companies had a limit to how much they can grow, while 'Bit' companies (I'm including AMZN, NVDA, AAPL here) seem to keep piercing the MAX frontier function.
Buffett of course doesn't invest in companies that he has little expertise in.
Rule of Investing : Build a model of the world and constantly update it with new information. Guidelines, Indicators, Correlations are meant to be broken.
Build an internal LLM that include long-term successful investors from Buffett to Shkreli and people with integrity like Aswath
Rates are pretty high, and cash sitting in US Treasuries are earning 5%. When you have $150 billion, that's $7 billion/year growth just in interest.
But it's not actually $7 billion in real growth, it's mostly just inflated.
Berkshire had $149 billion 2021. They have $157 billion today. That's actually a decrease in real terms.
Apple also holds a lot - https://www.investors.com/etfs-and-funds/sectors/sp500-compa...
Is there a reason they may hold it in cash instead of gold, in some unique event where time is money, and there isn't the time to convert the gold to capital before they may want to execute on certain event types?
Anyone have book recommendations for what kind of moves are possible, why such large cash reserves are held by companies?
He has quite a good explanation of that in the 1992 letter if you ^F for Burr Williams https://www.berkshirehathaway.com/letters/1992.html
Since then book value per share has gone from $7,745 to about $380k now so the approach seems to have worked ok.
Inflation is nibbling that away by roughly 10% a year. (So about $16 billion evaporating away per year).
Much the same sort of thing as when companies spend good money on just buying back shares, instead of using that money on increasing production and sales.
Yeah I mostly agree with that (even though I believe their insurance business is backstopped with cash as part of their strategy), but this part isn't true because we're not talking about paper cash:
Inflation is nibbling that away by roughly 10% a year. (So about $16 billion evaporating away per year).
Currently "cash" yields over 5% and inflation is less than that, so nothing is evaporating away.
Also, there have been plenty of times in history where cash has outperformed the alternatives (the last couple years being an example).
I suggest median expected lifetime earnings.
Can we measure money in units or souls?
That way you can see that for example Jeff Bezos makes 1.43 million $ an hour - about as much as the average American makes across their entire life. A shocking disparity.
[1] https://finance.yahoo.com/news/jeff-bezos-makes-1-49-1602190...
[2] https://www.firstrepublic.com/insights-education/how-much-do...
You have a good point about wealth disparity, but thanks for spreading clickbait..
Are they convinced that a more muscular re-investment in their businesses won't provide returns greater than interest?
Is there a tax advantage here that pushes companies to hoard?
Is the C-suite set really worried about the greater economic environment going forward and so want these cash piles as a buffer to get through coming lean times?
The reason it's in bonds and not in shares, is simply that bonds nowadays give a pretty decent revenue.
The stated reason from Berkshire is that the management thinks that there are too few investment opportunities priced (far enough) below their value to be worth buying. Presumably though he thinks Berkshire stock is an exception though - and priced too low - else it would be reasonable to buy some of that back.
Keep in mind that regardless of interest rates, sitting on cash for interest is not what investors want long term. Investors can do that themselves without taking on the equity risk.