Comment by raesene9 | Hacker News Reader

Comment by raesene9 | Hacker News Reader

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I'm not GP but, in theory, if a corporation can't find any opportunities for use of capital greater than holding it in safe/cash-like instruments and sees no possibility of those opportunities emerging in the short-medium term, it should be distributed to shareholders, who may well have use for it (even if those shareholders are just intending to put it into cash-like instruments themselves).

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.

Don't forget, reinsurance is a GIANT part of Berkshire Hathaway's business. If the right major disaster hits, they need a lot of liquid assets to pay it out.

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?

I'd be extremely surprised if the parent company (berkshire hathaway) had structured their companies in a way that left them liable to re-insurance risk :) They may own re-insurance companies, but that doesn't make them liable for losses in those companies.

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.

Yes, but the float in those insurance companies is invested by Berkshire Hathaway. So when people report on BH, they often quote the float as a pile of cash that Buffett is sitting on.

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."

The cash they show on balance sheet is rolled up from all their subsidiaries. It's not just the holdco cash. Of course they are liable. Who would buy reinsurance from them if they didn't have the cash required to cover a giant claim?

As an employee I'd much prefer my company to hold onto a rainy day // R&D fund than play stock market games.

> if a corporation can't find any opportunities for use of capital..., it should be distributed to shareholders

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.

Indeed but only at the rate of ~10% of profits ($10.761b for the quarter)

That seems reasonable to me. But I guess therein lies the rub. I get impression that many BH shareholders feel Warren and Charlie will be better at deploying that capital than they will.

oh I'm sure they're the best, they wouldn't have been so successful for as long if they weren't, but it does leave a slight concern (to me) if the absolute best people at running a company think there's no way to generate better returns than bonds at 5% it doesn't paint a great picture for likely growth in the near future...

It should be redistributed back to shareholders and then they should pay whatever tax is necessary to eliminate the imbalance in how labour/earned income is taxed more harshly than capital gains or whatever such a redistribution would legally contitute

I dont think any of it is that complicated. It is just that bonds pay so much more than any short other short term opportunities. When there are better opportunities elsewhere, that will change.

Force null all profits and lock down and crash the derivatives market

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