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Stocks A to Z / Stocks B / Berkshire Hathaway (BRK.A) ❤
No. of Recommendations: 13
I thought this was interesting given the author is a highly respected financial journalist:
Stipple of Jason Zweig
Awash in Cash
By Jason Zweig
Fellow investors,
Warren Buffett's Berkshire Hathaway is piling up cash at what I believe is the fastest clip in the history of corporations.
A year ago, Berkshire had an already stupendous $157.2 billion in cash and short-term investments. By this Sept. 30, the company had more than doubled that hoard to $325.2 billion.
Never mind that with this cash pile, Berkshire could buy all of the 40 smallest companies in the S&P 500, combined, at their current market value.
Leave aside the fact that this mountain of cash is greater than the gross domestic product of 55 of the world's nations put together, according to the World Bank.
What I think is interesting is what the cash says about Buffett and Berkshire.
As Buffett's teacher and mentor, Benjamin Graham, wrote in the first edition of The Intelligent Investor in 1949:
A company’s management may run the business well and yet not give the outside stockholders the right results for them, because its efficiency is confined to operations and does not extend to the best use of the capital. The objective of efficient operation is to produce at low cost and to find the most profitable articles to sell. Efficient finance requires that the stockholders’ money be working in forms most suitable to their interest. This is a question in which management, as such, has little interest. Actually, it almost always wants as much capital from the owners as it can possibly get, in order to minimize its own financial problems. Thus the typical management will operate with more capital than necessary, if the stockholders permit it—which they often do.
Over the past six decades, Buffett has proven himself to be one of the best capital allocators ever to run a major company. He was able to avoid the conundrum Graham identified, thanks to his flexibility in finding opportunities. Buffett toggled back and forth between the public and private markets, buying stocks when they were cheap, as in 1974 and 2008, and buying private companies outright when the public markets were expensive.
Buffett showed that "the best use of the capital" was in his own hands.
But that was when he had mere millions or billions of cash to work with, not hundreds of billions.
Is it humanly possible to find enough undervalued investments to put a third of a trillion dollars to work? In a world where private-equity funds will pay any price and bear any debt burden to put their surplus capital to work, I'm not sure.
Shareholders aren't likely to complain too much about drowning in cash so long as Buffett remains in charge, but I think his eventual successors will have to initiate a dividend. I doubt they will have much choice.
No. of Recommendations: 0
Special one-time dividend that comes when WEB finally passes away.
No. of Recommendations: 16
It is normal for an insurance company to have a large bond portfolio. Sometimes that is the only type of investment they make. Just picture Berkshire's bond portfolio as positioned unusually short in duration and stop worrying about what is called "cash" vs "fixed income."
No. of Recommendations: 6
I think a special one-time dividend is a bad idea. The stock will decline by the approximate amount of dividend on ex-div date and many shareholders will be worse off if dividend is taxable to them.
If a dividend is initiated it should be a regular, rising dividend at a low payout ratio. Firms with a long history of doing so are generally rewarded with higher valuations; e.g. Coke.
No. of Recommendations: 2
Special one-time dividend that comes when WEB finally passes away.
God forbid!!! (this is in reference to the dividend part, not the passing away part ... because everyone does at some point)
No. of Recommendations: 0
It is normal for an insurance company to have a large bond portfolio. Sometimes that is the only type of investment they make. Just picture Berkshire's bond portfolio as positioned unusually short in duration and stop worrying about what is called "cash" vs "fixed income."
Is it normal for an insurance company to have 322/174 = 1.85x float in fixed income? Plus a bunch of equities and businesses?
Genuine question. I don't know. I got burned early on with an insurance company (went bankrupt) and the only one I trust to invest in is Berkshire.
No. of Recommendations: 2
I think a special one-time dividend is a bad idea. The stock will decline by the approximate amount of dividend on ex-div date and many shareholders will be worse off if dividend is taxable to them.
If a dividend is initiated it should be a regular, rising dividend at a low payout ratio.
Completely agree. One-time huge dividend would be very hard on us long-time shareholders. Regular normal sized but rising could be worked around easier.
If I did my sums right, a 2% dividend wouldn't quite mop up the annual Non-Insurance Operating Businesses Earnings (BNSF + Energy + MSR).
No. of Recommendations: 5
Completely agree. One-time huge dividend would be very hard on us long-time shareholders. Regular normal sized but rising could be worked around easier.
No! Even a normal sized rising dividend would eviscerate people like Gottesman. Let's say a small-ish 1.5% dividend. In a case like Gottesman, over 60 years, the taxes at an average 33% rate would consume over 30% of the total value of those shares. That means that their chosen charity would have received 30% less!!! No thank you. I'd much prefer all earnings reinvested internally. I also trust people like WEB to allocate capital more than I trust people like me to do so.
No. of Recommendations: 0
No thank you. I'd much prefer all earnings reinvested internally. I also trust people like WEB to allocate capital more than I trust people like me to do so.
And I completely agree, but as you know, I was replying to "If a dividend is initiated it should be a regular dividend..." and not a huge, one-time dividend.
No. of Recommendations: 0
The stock will decline by the approximate amount of dividend on ex-div date and many shareholders will be worse off if dividend is taxable to them.Heh. A video on this just came out yesterday:
https://www.youtube.com/watch?v=qx3EKnoExlI"The Dumbest Tax You Can Pay in 2024"
No. of Recommendations: 0
Is it normal for an insurance company to have 322/174 = 1.85x float in fixed income?
Current allocation to T-bills & cash (or Fixed Income if you prefer) is just a side effect of the unattractiveness of current opportunity set; it won't be a permanent state of affairs. Don't forget the broader market is trading quite at the higher end of the its historical valuation range.
