Is Berkshire’s Surging Cash Pile a Warning from Buffett?

Today, Berkshire Hathaway Inc. (BRK.A) (BRK.B) released its third-quarter earnings. More than the hard financial numbers, markets were awaiting the release to get an idea of the company’s cash pile and buyback activity.

Berkshire’s cash pile

Berkshire Hathaway’s cash pile surged to a record $128 billion at the end of the third quarter. It stood at $122 billion at the end of the second quarter. The company’s cash pile rose gradually over the last year. Notably, Berkshire chair Warren Buffett is looking at a big acquisition. Chairman Buffett has a big fan following.

However, he hasn’t been able to find what he calls an “elephant-sized acquisition.” Meanwhile, as the company’s rising cash pile shows, Buffett wasn’t too active in publicly traded securities either. However, we’ll get more details when Berkshire releases its third-quarter 13F form later this month.

Warren Buffett

Looking at Berkshire’s portfolio of publicly traded securities, Apple (AAPL) was the largest holding at the end of the second quarter. While Buffett hasn’t been active in markets, he hasn’t gone overboard with buybacks either.

Berkshire repurchased only $700 million worth of its shares in the third quarter. That’s at best a drop in the bucket for a company that’s sitting on a $128 billion cash pile. Notably, last year Berkshire tweaked its buyback policy to give more discretion to Buffett and vice chairman Charlie Munger.

A subtle warning for investors

Buffett is a well-known value investor. However, Buffett doesn’t seem to see a lot of opportunities in publicly traded securities. Big acquisitions have not been too easy. This is in part because there might not be many bargain deals.

With markets near record highs, not many quality companies are in dire need of capital. The ones that might need capital might not fit into Buffet and Berkshire’s scheme of things. The last available avenue for Buffett to deploy Berkshire’s cash is buybacks. However, even here Buffett has preferred to go slow.

Berkshire and Buffett

Now, if arguably the best value investor of our times doesn’t find many opportunities in the market, it could be a subtle warning. Incidentally, while Bill Ackman believes that Berkshire stock is grossly undervalued, Buffett does not seem to believe so. Otherwise, we might have seen a much higher buyback. Does this mean that Buffett foresees a market crash where he would get an opportunity to deploy Berkshire’s cash?

That said, US economic growth and most economic indicators, have generally surprised on the upside. The exceptions are manufacturing and durable goods orders. So, Berkshire’s cash pile might continue to swell longer. However, current markets look like a nightmare for a value investor. Read Is Warren Buffett’s Nightmare Scenario Coming True for more analysis.