The Oracle of Omaha, Berkshire's Buffett has spoken

With the conglomerate "drowning in cash", can he bring the business to safety?

The Oracle of Omaha, Berkshire's Buffett has spoken


By Bethan Moorcraft

“Drowning in cash” – that’s how one financial analyst described Warren Buffett’s Berkshire Hathaway after the Omaha, Nebraska-based conglomerate revealed it was sitting on a cool US$149.2 billion cash pile at the end of September.

While “drowning in cash” doesn’t sound so bad, it has caused some to question the investment strategy of the so-called Oracle of Omaha – a nickname that 91-year-old Buffett earned for being arguably one of the greatest investors of all time.

The question is: Will Berkshire Hathaway’s immense coffers cause a blemish on Buffett’s relatively untarnished reputation? That’s very hard to answer without oracle-esque prophetic sight.

It’s not like the business juggernaut has sat resting on his laurels while raking in cash. For the past four quarters, Berkshire Hathaway was a net seller of equities, trimming its holdings in insurance, banks, and financial investments, in particular.

The conglomerate, which houses several insurance companies, including Berkshire Hathaway Specialty Insurance and auto insurance giant GEICO, revealed in its third quarter (Q3) earnings that it had sold almost US$2 billion more in stocks than it purchased in the three months ended September 30, and yet, its cash pile still ballooned to almost US$150 billion.

Perhaps another fitting nickname for Buffett would be Money Magnate of Omaha.

Cash bulges in Buffett’s purse, but, at the moment, the Oracle (a worldwide celebrated investor with near-divine financial sight) seems to be struggling to make investments worthy of his title.

Analysts agree that Buffett’s stock-selling streak is largely connected to sky-high price tags in the stock market, as well as fierce competition from private equity firms and special purpose acquisition companies (SPACs).

Earlier this year, the Berkshire Hathaway chairman and CEO warned investors that the conglomerate’s deal-making activities may struggle while SPACs enjoy a moment of explosive growth.

But in true Buffett (aka, Oracle) fashion, he also suggested that he thought the SPAC boom wouldn’t last.

If Buffett predicts the demise of the SPACs, then it must come true, right? Who knows? But any prophecy from the Berkshire Hathaway leader tends to hold such sway that investors are inevitably driven to act.

By prognosticating in such a way, perhaps the wise-old investor was simply setting up the market for Berkshire Hathaway’s future success. Should the 91-year-old’s foresight about SPACs come true, the business is ready to pull the trigger on one (or several) massive acquisitions. It is, after all, “drowning in cash”.

Until then, the good ol’ Oracle has used a different trick up his sleeve – one that he has, in fact, shunned in past years. Berkshire Hathaway has managed to deploy billions of dollars while struggling to secure splashy acquisitions by leaning on share buybacks.

The United States-based company repurchased US$7.6 billion of stock in the three months ended September 30, up from the US$6 billion of stock it bought back in the previous quarter. In the first nine months of 2021, the group repurchased more than US$20 billion of Berkshire Hathaway stock.

Bloomberg spoke to Cathy Seifert, an analyst at CFRA Research, about what this means. She said: “The bull case would say they bought back US$20 billion worth of their stock because they’re confident in their future outlook and that should be a catalyst for the stock, and my sense is it probably will.

“The bear case, which is also relevant to point out, is this is a company that has had, as a stated desire, the need to make additional acquisitions and they haven’t been able to do that.”

So, the reality is: the Oracle has been thwarted by stock market conditions, and the result is that Buffett [as a metonym for Berkshire Hathaway as a whole] now has too much money. But it is highly unlikely that the conglomerate will actually drown in its record-breaking pile of cash.

After all, its chairman is the Oracle of Omaha, so I would think twice before doubting his strategy.  

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