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Buffett’s Bargain Hunt: Berkshire Hathaway’s Growing Cash Reservoir

Warren Buffett, often dubbed the “Oracle of Omaha”, has long been a North Star for many investors. However, recent figures from Berkshire Hathaway’s Q2 earnings indicate that even the legendary investor is finding it tough to land solid bargains in today’s market.

Last quarter, Berkshire Hathaway offloaded a whopping $13 billion in stocks, while only scooping up less than $5 billion worth. This substantial net sale of around $8 billion is eye-catching in itself. But what’s more intriguing is the noticeable reduction in stock buybacks: dropping from over $4 billion in Q1 to just $1.4 billion in the subsequent quarter. The probable cause? A rising Berkshire stock price might have made buybacks seem less attractive.

As a result of these strategic moves, the conglomerate’s cash reservoir expanded by 13% to reach $147 billion at the end of June. This is only a stone’s throw away from the peak cash pile of $149 billion observed in late 2021. For seasoned Buffett observers, a swelling cash pot, coupled with a decline in stock and acquisition activities, signals limited lucrative deals in the broader market.

Considering the diversified range of industries under Berkshire Hathaway’s umbrella, many view its performance as a litmus test for the U.S. economy. The latest figures show mixed signals. On the upside, operating earnings increased by 7% YoY, reaching $10 billion. This was primarily bolstered by the insurance division, which saw a spike in underwriting and investment income. On the other hand, sectors like the BNSF Railway reported diminishing earnings, and the energy division remained relatively stagnant.

A bright spot in the earnings was the performance of Pilot Travel Centers. After Berkshire amped up its stake to 80% in the company in January, Pilot chipped in an impressive $15 billion in revenue and $114 million in earnings for the last quarter.

Comparing Buffett’s recent financial maneuvers to last year’s, the change in pace is clear. 2022 was a year of aggressive investments, with Berkshire directing a record $68 billion into stocks. Additionally, the acquisition of Alleghany for $12 billion and repurchases of nearly $8 billion worth of stock made headlines. Fast forward to this year, and there’s a palpable sense of caution: Over $18 billion of stocks were sold net in the first half of the year, and Treasury purchases also experienced a dip.

Despite the changed dynamics and external concerns like Fitch’s recent downgrade of America’s credit rating, Buffett remains unperturbed. He maintains that the weekly Treasury spending remains consistent.

So, what’s the takeaway for investors and entrepreneurs? Sometimes, it’s okay to hold back and wait for the right opportunity, even if you’re Warren Buffett. In an ever-fluctuating market, patience could indeed be the most valuable asset.