Warren Buffett’s Berkshire Hathaway revealed in an earnings update for the second quarter of 2023 that it now has over $147 billion in cash or cash equivalents – a $42 billion increase from last year.
Berkshire Hathaway posted operating earnings of just over $10 billion for the second quarter and net income of $35.9 billion.
Buffett regularly tells Berkshire shareholders to ignore net income and focus on its operating earnings, which he feels better reflects how the company is doing.
Berkshire ended the second quarter with $147.4 billion in cash and cash equivalents, up from $130 billion at the end of the first quarter.
In recent years, Buffett has accumulated a large amount of cash at Berkshire, with $120.4 billion invested in US Treasury bills of various maturities.
The US was recently stripped of its top-tier sovereign credit grade by Fitch Ratings, which criticised the country’s ballooning fiscal deficits and an “erosion of governance”.
The credit grader cut the US one level from AAA to AA+, echoing a move made more than a decade ago by S&P Global Ratings.
Tax cuts and new spending initiatives coupled with multiple economic shocks have swelled budget deficits, Fitch said, while medium-term challenges related to rising entitlement costs remain largely unaddressed.
On Thursday, Buffett said Fitch Ratings’ downgrade of US government debt is nothing to worry about and would not diminish Berkshire’s appetite for it, saying the company will continue buying $10 billion of Treasury bills weekly.
Holding cash a source of strength
Buffett has said that he is comfortable holding this much cash because he believes the stock market is overvalued and few good investment opportunities are available.
However, he has also said he is ready to deploy this cash as soon as he finds a good investment.
In his 2023 letter to shareholders, Buffett said that Berkshire was “prepared to do big deals” if the right opportunities came along.
He also said he was “not worried” about the company’s large cash hoard, saying it was “a source of strength”.
Buffett’s position on cash is not without its critics. Some people argue that he is being too cautious and that he is missing out on potential investment opportunities by holding so much cash.
Others argue that he is right to be cautious and that he is better off holding cash than investing in overpriced stocks.
Charlie Munger, Warren Buffett’s long-time business partner, is also a proponent of holding cash. However, he is more cautious about holding too much cash than Buffett.
In a 2022 interview, Munger said he had never hoarded cash, waiting for better conditions. He said he had always invested in the best thing he could find, even if it meant paying a premium.
In recent years, Munger has been critical of the amount of cash that Berkshire is holding. He has said the company has “too much money” and that it should be investing more aggressively.
However, Munger is still cautious about when to invest cash. He has said he would rather “hold cash and wait for a great opportunity” than “invest in something mediocre”.