Here’s how Buffett’s Berkshire Hathaway covered the worst-case scenario

shares in this article

• Berkshire Hathaway is sitting on a huge mountain of money
• A lack of investment alternatives is probably just one reason for the enormous cash reserves
• Investor believes the money is intended to reassure shareholders

Warren Buffett’s investment holding company, Berkshire Hathaway, still has cash reserves of $146.6 billion. Investors have been hoping for months that the stock market legend will announce a mega deal and reinvest at least part of the excess reserves. But the current stock market environment makes it difficult for a star investor like Warren Buffett to identify worthwhile investment opportunities. Because his value strategy is hardly used in the current market – given the high valuation of many companies on the market, bargains with strong potential are hard to find.

What remains if Berkshire Hathaway’s cash reserves aren’t expected to increase from quarter to quarter would be an investment outside of Buffett’s value strategy, which experts consider unlikely. Alternatively, Berkshire Hathaway could distribute the money to shareholders and let them participate in the investment company’s success in the form of share buybacks or dividend payments. But a longtime Berkshire Hathaway investor believes the company has good reason not to pay off its stash of cash.

Money is used to reassure investors

Smead Capital Management’s Bill Smead told Yahoo Finance what he believes is the biggest reason the holding company is holding on to a large portion of its excess reserves. “It’s a bit frustrating that he [Warren Buffett] holds that much cash, but we believe he has that much cash because it’s statistically likely that if one of the two key employees, aged 89 and 95, goes to the hospital, investors will be worried.”

This has been the case in the past, as Smead points out: When Buffett announced in 2012 that he had been diagnosed with prostate cancer, it put pressure on Berkshire stock. Only after Buffett assured that the cancer was not life-threatening did the stock rebound, according to Yahoo.

The excess cash reserves are intended to be used to reassure investors in the event of an emergency and to support the share price if the company’s key executives, Warren Buffett and Charlie Munger, should develop health problems. “If any of them got sick, they loaded that bazooka to buy back Berkshire Hathaway stock in case people panic,” Smead believes.

Buffett successor announced

Regardless of this, Warren Buffett recently announced who will succeed him in the group. “Management agrees that if anything happened to me tonight, Greg would take over the helm tomorrow morning,” the billionaire told CNBC. This refers to Greg Abel, a member of the board of directors at Buffett’s investment holding company Berkshire Hathaway, who has long been regarded by observers as a potential Buffett successor if the now 90-year-old star investor can no longer exercise his CEO post.

Editorial office finanzen.net

Image Sources: Krista Kennell / Shutterstock.com