Investment guru Warren Buffett offered a few insights into Berkshire Hathaway, Inc.’s BRK BRK plans for its swelling cash hoard at the firm’s annual shareholder meeting on Saturday.
Cash Is King: Buffett was asked about potentially investing some of its $189 billion cash reserves and the billionaire had a simple reply: “I don’t think anybody sitting at this table has any idea of how to use it effectively and therefore we don’t we don’t use it.”
This is despite the prevailing higher interest rate environment, he suggested. “We don’t use it now at 5.4% but wouldn’t use it if it was at 1%,” he said. Buffett was referring to the Fed funds rate, which is currently at 5.25%-5.50%, with the mid-point working out to 5.375%.
Buffett’s sense of humor was in full flow, with the Berkshire chief remarking jestingly, “Don’t tell the Federal Reserve that.”
Choosy Strategy: He also made it clear that the investment option should appeal to him and he usually does not rush into things. “We only swing pitches we like and if anybody tried to swing at every pitch or felt that, because they hadn’t swung at a pitch for two, for the last two pitches, they ought to swing at the third one, or something like that, it’s just, there are times and obviously, but I would say this – I would not like to be running $10 billion now, $10 million I think, we could.”
Referring to the now-deceased Charlie Munger, Buffett said they could earn high returns because they both thought there are just a few things that happen on a very, very small scale. “But if we had $10 billion, we wouldn’t basically see many more opportunities than we found now,” he said.
He seemingly alluded to the current lofty valuations amidst the market’s record run. Buffett has few options at his disposal to deploy Berkshire’s substantial cash reserves. The value investment philosophy that Buffett champions involves purchasing stocks that are undervalued compared to their intrinsic worth.
Buffett, however, sounded positive about Japanese bets. “It’s true that something like Japan, we could have done, if the company had $30 billion or $40 billion,” he said, adding that they could have had great returns on equity.
“But if I saw one of those now, I’d do it for Berkshire,” he said.
Incidentally, Berkshire made a combined $6 billion bet in five Japanese trading houses in the summer of 2020 amid the pandemic. Explaining the rationale, Munger said in 2023 that the firm was able to borrow cheaply, thanks to the ultra-loose monetary policy in Japan, and plow the cash into stocks that paid about 5% dividend each year.
Buffett said he was not willfully staying away from deploying cash. “It isn’t like I got a hunger strike or something like that going on. It’s just that things aren’t attractive,” he said.
“There are certain ways that can change and we’ll see whether they do.”
Incidentally, Tesla CEO Elon Musk has been frantically trying to attract an investment from Berkshire. Every time a social media user comments about Berkshire’s cash pile, he openly asks that Buffett plow some of it into his electric vehicle company.
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