Berkshire Hathaway, the conglomerate led by legendary investor Warren Buffett, is currently sitting on a record pile of cash totaling $189 billion. While some investors may see this as a sign of impending doom for the stock market, one fund manager is urging caution against jumping to conclusions.
Chris Bloomstran, fund manager of Semper Augustus, which counts Berkshire Hathaway as its largest position, recently spoke out about the misconceptions surrounding the company’s massive cash reserves. In an interview with Business Insider, Bloomstran emphasized that Berkshire Hathaway’s cash position should not be cause for alarm.
According to Bloomstran, Berkshire Hathaway’s cash pile should be viewed in context. When measured as a percentage of the company’s total assets, the current cash position of 17.5% is actually in line with its long-term average since 1997. Additionally, when compared to the firm’s market valuation, the $189 billion cash reserve is at a normalized level and well below its peak in 2004.
It’s important to note that Berkshire Hathaway is required to hold onto a significant portion of its cash to fund potential insurance payouts from its massive insurance operations. Bloomstran estimates that only about half of the cash is actually available for investment, with the rest being earmarked for insurance reserves.
Furthermore, due to the size of Berkshire Hathaway, the company’s investable universe is limited to a select group of companies that can truly move the needle for the conglomerate. Despite the current high valuations in the market, Buffett and his team are patiently waiting for the right investment opportunities at the right price.
In conclusion, Bloomstran advises against interpreting Berkshire Hathaway’s cash position as a signal of an imminent stock market crash. Instead, investors should trust Buffett’s disciplined approach to investing and remember his famous quote: “We only swing at pitches we like.”
