Record cash flow
Berkshire Hathaway (BRK.B) generates cash flow of $3.5 billion–$4 billion per month in the form of profits from its subsidiaries and divisions. The company saw operating cash flow of $37 billion in 9M17 (the first nine months of 2017), compared with $25 billion in 9M16.
On September 30, 2017, the company was sitting on cash and equivalents and short-term investments of $109 billion, up from $86 billion on December 31, 2016. Buffett can add companies only if they fit into predefined criteria. The company must constantly look for acquisitions or add to its investment portfolio to deploy additional cash for generating returns for shareholders. There are very limited takeover options in the current high-valuation market.
The company’s investment portfolio of $178 billion could still be expanded amid lower chances of entire takeovers. In comparison, BlackRock (BLK) manages $6 trillion in equity, debt, and structured assets comprising ETFs and active fund offerings.
Given the size of global markets, Berkshire could certainly add one or two acquisitions in 2018, subject to low valuation premiums. The company could also expand its minority holdings in various companies through its investment portfolio for medium-term growth. Overall, premium-valuation markets (SPY) are less suitable for Buffett’s style of investing, which comprises adding assets in a discounted-valuation scenario. Vanguard, State Street (STT), and Blackstone (BX) are also managing record amounts using active management across products.