After the market closed on Friday, August 4, Berkshire Hathaway released its Form 10-Q for the quarter ending June 30, 2017. This filing revealed a record cash position of $100 billion as compared to $96 billion on March 31 and $86 billion as of December 31, 2016.
Warren Buffett previously stated that Berkshire intends to hold a permanent cash position of $20 billion and would like to invest the remaining cash of $80 billion since it is currently earning a rate of return close to zero. What are Berkshire’s likely options?
There are three approaches that Berkshire is likely to follow:
(1) Acquire one or more large companies such as its 2016 purchase of Precision Castparts for $32 billion and its 2010 acquisition of Burlington Northern Sante Fe for $26 billion (for the 77.4% it did not already own). Warren Buffett will participate in friendly deals only and will avoid auctions.
(2) Partner with 3G Capital to provide $10 billion or more to acquire companies such as the acquisition of Kraft by Heinz (to form Kraft Heinz) in 2015.
(3) Common stock investments such as Berkshire’s 2016-17 purchase of shares in Apple which are currently valued at about $20 billion. Berkshire’s equity investments equaled $137 billion on June 30. (Warren Buffett’s portfolio managers, Todd Combs and Ted Weschler, each manage about $10 billion.)
Warren Buffett is extremely patient and will invest only when the opportunity is very attractive. With the stock market at all-time highs it is becoming more difficult to find undervalued stocks. However, future market fluctuations should provide additional opportunities.