ii view: Berkshire Hathaway cash now exceeds $300bn

Third-quarter results to 30 September 

• Operating earnings down 6% to $10.1 billion (£7.8 billion)
• Net earnings attributable to shareholders of $26.25 billion, up from a loss of $12.76 billion
• Cash held of $325.2 billion up from $276.9 billion in Q2

ii round-up:

The Warren Buffett headed conglomerate Berkshire Hathaway Inc Class B (NYSE:BRK.B) detailed yet another increase in cash held as quarterly operating profit retreated on a weaker insurance underwriting performance. 

Third-quarter cash swelled to $325.2 billion as of late September, up from $276.9 billion in the second quarter, driven by ongoing sales in major investments such as Apple Inc (NASDAQ:AAPL) and Bank of America Corp (NYSE:BAC). No buybacks of its own Berkshire shares during the period compared with $345 million worth in Q2 and $2 billion in Q1. 

Shares in the S&P 500 conglomerate and investment company have risen 25% year-to-date, outperforming a 20% gain for the index itself. Apple is up 16% in 2024 and Bank of America 24%.

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Berkshire operates over 90 businesses including insurance operations, railway and energy companies and manufacturing businesses. 

Operating profit for Berkshire businesses owned, and excluding investment gains or losses, fell 6% during the quarter to $10.1 billion, down from $10.7 billion in Q3 2023.  

Potentially impacted by hurricanes, insurance underwriting profits fell to $750 million from $2.4 billion a year ago. Energy related profits partly compensated, rising to $1.6 billion from $498 million this time last year. 

Berkshire profit, including investment gains and losses, hit $26.25 billion compared with a loss of $12.76 billion in Q3 2023. 

Warren Buffett celebrated his 94th birthday in August. Business partner Charlie Munger died in November last year.  

ii view:

Started in 1839 as a textile company, Warren Buffett began transforming Berkshire into the conglomerate we see today back in 1965. Berkshire Hathaway shares trade on the New York stock exchange under the two classes of A and B shares. The originally established ‘A’ class shares carry considerably greater voting power.

For investors, the continued lack of a major acquisition for Berkshire to spend its cash mountain on is likely frustrating some investors. Earnings for insurance underwriting can prove volatile given unforeseen natural events such as earthquakes. Costs generally for businesses remain elevated, while the eventual departure of Mr Buffett from the business could potentially dampen investor enthusiasm.

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More favourably, its diversity of businesses regularly leaves gains for one division countering falls for another. The lack of any recent major acquisitions arguably underlines management’s patience in waiting for an appropriate buying opportunity at the right price. Halting share buybacks could also suggest that management believes there will be better buying opportunities ahead. 

For now, and given the legendary judgement and experience of Mr Buffett and his team in utilising cash wisely, Berkshire shares appear to remain worthy of a place in many diversified long-term focused investor portfolios.    

Positives: 

• Diverse portfolio of industries and businesses
• Company chairman Warren Buffett is regarded by many as a legendary investor and businessman 

Negatives:

• Subject to macro-economic and geopolitical uncertainties
• Management succession risk - Mr Buffett is in his 90’s

The average rating of stock market analysts:

Strong hold