After Warren Buffett's conglomerate Berkshire Hathaway Inc BRK BRK declared its third-quarter results in early November, investors have been curious as to why he sitting on nearly $325 billion in cash and equivalents.
What Happened: Analysts have been speculating an array of reasons for the world's most famous value investor to be holding such a huge pile of cash. It could be for an acquisition plan, a buyback plan in case of a succession, or an expectation of a market fall.
The stock markets have been trading higher than their pre-election levels with a looming threat of a possible pause in the interest rate cuts. This has led analysts to wonder if Berkshire is avoiding investing because he cannot find any value in the markets at the current level.
“What some describe as a hot stock market, Warren Buffett would describe as overpriced,” Cathy Seifert, a director at CFRA Research told Fortune.
Buffet’s current stance on the cash "reflects a fundamental skepticism about the sustainability of current market valuations, the sustainability of the Trump trade, combined with the fact that they're not seeing a lot of acquisition targets that are appealing to them,” she said.
The 94-year-old Buffet will be succeeded by Greg Abel to run Berkshire. "The unfortunate actuarial reality is, at some point in time, you have a change in senior management, and I suspect that they want to have a lot of cash to buy back Berkshire Hathaway stock," said Meyer Shields, managing director at Keefe, Bruyette & Woods to Fortune. He implied that freely available cash can be utilized in case of a sell-off to benefit the shareholders
On the other hand, MicroStrategy Inc‘s MSTR co-founder, Michael Saylor has said that Buffett is destroying billions of dollars in capital by not utilizing the cash at their disposal to invest in Bitcoin BTC/USD.
"That $320 billion.. that is destroying $32 billion a year. They are destroying $3 billion a month in capital because they're generating a 3% after-tax yield at best, and the cost of capital is 15%. So take 12% negative real yield," Saylor said.
Why It Matters: By holding cash and equivalents Berkshire could be making only “3% after-tax yield at best, and the cost of capital is 15%. So take 12% negative real yield,” said MicroStrategy’s Saylor
While analysts speculate various reasons, Saylor in a podcast with Patrick Bet-David made a case for Buffet to invest in Bitcoin. "I'd want to bet you that if I had an hour alone with Buffett in a calm environment, I'd walk out and he would say this Bitcoin thing is a pretty good idea."
Saylor was optimistic that Buffett would have wanted to buy Bitcoin after the interaction and would come out saying that the late Charlie Munger would have liked the idea.
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