Why Warren Buffett's Cash Reserves Have Doubled

Berkshire Hathaway's Cash Reserves Reach a Record $334.2 Billion

Berkshire Hathaway, led by legendary investor Warren Buffett, has amassed a record-high cash reserve of $334.2 billion as of the fourth quarter of last year. This figure is nearly double the previous year's total of $167.6 billion and represents approximately 75% of South Korea's annual budget. Despite the substantial increase, Buffett remains committed to long-term investments and has signaled an expansion of Berkshire's holdings in Japan's top five trading companies.

Record Cash Holdings, but No Shift in Investment Strategy According to Berkshire's latest financial report, the company's cash holdings have grown for ten consecutive quarters, reaching unprecedented levels. However, its stock holdings have decreased from $354 billion to $272 billion over the same period, marking a 23% decline. In the fourth quarter alone, Berkshire net-sold stocks worth $6.7 billion.

The increase in cash reserves suggests that Buffett has found it challenging to identify attractive investment opportunities due to high market valuations. At last year's annual shareholder meeting, he emphasized his selective investment approach, stating that he only swings the bat when the right pitch comes. Over the past year, Berkshire has sold $143 billion worth of stocks, including major financial firms like Bank of America and a portion of its Apple holdings, which remain its largest stock position.

Despite concerns over the growing cash pile, Buffett reassured shareholders in his annual letter that his investment philosophy remains unchanged. He reiterated his commitment to stock investments, stating, "The majority of our funds are still invested in public and private equities, and that will not change. Cash equivalents will never be preferred over owning shares in outstanding businesses."

The Logic Behind Buffett’s Growing Cash Reserves Buffett did not explicitly address why Berkshire continues to amass cash. Instead, he reinforced his long-standing value investing principles. This year marks the 60th anniversary of his acquisition of Berkshire Hathaway, and he acknowledged past investment mistakes while emphasizing that long-term success can offset short-term missteps.

He cited some of his most successful investment decisions, including the acquisition of auto insurer GEICO and the hiring of Ajit Jain, who has played a crucial role in managing Berkshire's insurance business. He also paid tribute to his longtime business partner, the late Charlie Munger, whom he described as his "once-in-a-lifetime best decision." Buffett's message to investors was clear: mistakes are temporary, but long-term winners endure.

There is speculation that Berkshire’s growing cash reserves could be tied to succession planning. At 94 years old, Buffett has already named Greg Abel as his successor for non-insurance operations. In his letter, Buffett hinted at the transition, saying, "The day is coming when Abel will be writing the annual shareholder letter instead of me."

Increased Stake in Japan’s Five Major Trading Companies Buffett announced plans to expand investments in Japan's top five trading companies: Itochu, Mitsubishi, Mitsui, Sumitomo, and Marubeni. Berkshire initially started buying shares in these firms in July 2019, and as of the end of last year, the total market value of its holdings in these companies had reached approximately 3.5 trillion yen.

Previously, Berkshire had aimed to keep its stake in each company below 10%, but Buffett now indicates that these limits will gradually increase. He praised the firms for their responsible shareholder return policies and relatively modest executive compensation compared to American companies. Buffett reaffirmed his long-term commitment to these investments and expressed confidence in their management teams.

Buffett Urges U.S. Government to Spend Taxes Wisely In an unusual move, Buffett included a message directed at the U.S. government in his annual letter. Although he has long been known for avoiding political commentary, he used this opportunity to emphasize responsible fiscal policy.

Buffett noted that before acquiring Berkshire in 1965, the company paid no income taxes, but last year alone, it contributed $26.8 billion in corporate taxes. He urged the government to use these funds wisely, stating, "We must ensure that those who face hardships through no fault of their own receive fair treatment."

He also warned against reckless fiscal policies, highlighting that "history has shown that irresponsible financial management can rapidly erode a currency’s value." This comment appears to be a critique of the Trump administration’s tax cuts and rising government debt. Buffett stressed that maintaining a stable U.S. dollar is essential for economic stability.

Despite these concerns, Buffett remains optimistic about the U.S. economy. He described America’s 235-year economic progress as a "miracle" that the nation’s early settlers could never have imagined. However, he cautioned that the government has the power to either foster or hinder this progress, emphasizing its crucial role in shaping the country's economic future.