Warren Buffett reaches record cash with rising interest rates – 11/04/2023 – Market

Berkshire Hathaway Inc.’s cash hit a new record of $157.2 billion, driven by high interest rates and a dearth of significant businesses in which billionaire Warren Buffett could invest his money.

The conglomerate, which largely invested in short-term US Treasury bonds, reached its highest level since the third quarter of 2021, the Omaha, Nebraska-based company reported this Saturday (4). The company also reported operating profits of $10.76 billion, an increase from the previous year, benefiting from the impact of high interest rates on cash and gains in its insurance business.

Despite increasing acquisitions in recent years, Berkshire has still struggled to find many of the big deals that boosted Buffett’s fame, leaving him with more money than he and his advisors can invest in a short period of time.

After staying away during the pandemic, the billionaire bought shares in Occidental Petroleum Corp. and reached an $11.6 billion deal to buy Alleghany Corp. Buffett has also leaned heavily on share buybacks due to a dearth of attractive alternatives, saying such measures benefit shareholders.

“Cash investment is definitely slowing down,” said Edward Jones analyst Jim Shanahan. “Ultimately, Berkshire will start to feel some pressure to invest the money.”

The dearth of deals hasn’t dampened investors’ enthusiasm for the company. Its shares hit a record high in September as investors looked to its diverse range of businesses as a hedge against deteriorating economic conditions. And while shares have pared some of those gains, the stock is still nearly 14% above its full-year value.

The company also spent $1.1 billion on buybacks in the period, bringing the total for the first nine months of the year to about $7 billion. The conglomerate reduced its overall stock portfolio in the quarter, netting nearly $15.7 billion in net purchase sales.

Including investments and derivatives, Berkshire reported a loss of nearly $12.8 billion in the quarter, larger than a year earlier, mainly due to declines in its stock portfolio. Berkshire often recommends that investors ignore gains or losses on investments, which are tied to accounting rules, saying this can be misleading to investors.

Operating Units

The company operates and invests in all sectors of the US economy, owning businesses such as Geico, BNSF, Dairy Queen and See’s Candies, which makes investors see the company as a window into broader economic health.

Strength in the insurance unit — plus the inclusion of earnings from Pilot Flying J, which Berkshire did not include in last year’s results — helped boost profitability. Berkshire said its insurance business posted a profit of $2.42 billion compared with a loss in the same period a year earlier, when the insurance industry was being hit by catastrophes.

The company’s Geico unit, which had been struggling with a lack of profitability throughout 2022, also posted a profit compared to the same period last year as it reduced advertising spending by 54% year-to-date. The improvement follows the division’s efforts to revamp underwriting after facing higher costs to replace or repair damaged vehicles. The effort has cost it market share, raising the question of whether it will seek to regain that ground.