Subject: The Berkshire Problem
This is quite random and posted for my educational purposes'

Berkshire has a problem. Albeit a high class problem. If it does not get the opportunity to allocate capital, it will eventually have too much cash.

Take Apple for example. It's arguably fairly valued (it's a great business) or perhaps expensive. Certainly few would expect market beating returns from here. But what can Berkshire do?

It can't just unload that much stock without depressing the price.

If it did sell up, what would it buy that would be a better business in the very long term?

If it sold it, capital gains tax would be payable. If there was nothing better to buy would it return capital to shareholders in dividends and pay yet more tax. It's not easy being big and successful.

2023 has been a challenging year on the deploying capital front so far. Buybacks have dried up due to valuation. The equity bubble has re-inflated and Berkshire is a net seller. Large private businesses are not finding a home at Berkshire, or a least not enough of them.

The world has changed dramatically in the last year. Suddenly bonds and cash are providing a return that keeps up with inflation. But that friends, is not enough of a return to justify Berkshire holding excessive cash. After all we can all put money on deposit or buy low risk treasuries. We don't need to be paying Mr Buffett that $100,000 p.a to manage our capital, if he doesn't perform capital allocation master strokes for us.

Yes it seems clear that the reason we hold Berkshire, at this juncture, is for a steady return with an option to allocate capital again, if things get cheap at some point in the future.

I can't see Mr Buffett or his successor letting cash as percentage of assets or compared to insurance float going significantly higher. Something has to give.