There’s been a lot of speculation about what legendary investor Warren Buffett’s Berkshire Hathaway will do with its massive cash pile.
Writing in Berkshire Hathaway’s annual shareholder letter (BRK-A, BRK-B) Buffett makes a case for why there won’t be an “elephant-sized” acquisition anytime soon given the sky-high valuations.
“Berkshire will forever remain a financial fortress. In managing, I will make expensive mistakes of commission and will also miss many opportunities, some of which should have been obvious to me. At times, our stock will tumble as investors flee from equities,” Buffett wrote.
Berkshire Hathaway holds approximately $112 billion in cash and cash equivalents. Buffett noted that a portion of that stash is “untouchable” since they want to always hold at least $20 billion “to guard against external calamities.” Buffett also said he will “never risk getting caught short of cash.”
“In the years ahead, we hope to move much of our excess liquidity into businesses that Berkshire will permanently own. The immediate prospects for that, however, are not good: Prices are sky-high for businesses possessing decent long-term prospects.”
“That disappointing reality means that 2019 will likely see us again expanding our holdings of marketable equities,” Buffett continued. “We continue, nevertheless, to hope for an elephant-sized acquisition. Even at our ages of 88 and 95 – I’m the young one – that prospect is what causes my heart and Charlie’s to beat faster. (Just writing about the possibility of a huge purchase has caused my pulse rate to soar.)
“My expectation of more stock purchases is not a market call,” he clarified. “Charlie and I have no idea as to how stocks will behave next week or next year. Predictions of that sort have never been a part of our activities. Our thinking, rather, is focused on calculating whether a portion of an attractive business is worth more than its market price.”
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Julia La Roche is a finance reporter at Yahoo Finance. Follow her on Twitter.