Buffett hangs on to stocks and cash as share market continues rising

Fancy earning a 2,800,000% return on your money?

It has been possible with that amazing return being what investing in Berkshire Hathaway shares gave over the 56 years it has been run by the Oracle of Omaha, Warren Buffett.

That is a stellar average of 20% a year or double the return of the S&P 500 over the same period – an investing performance that is unlikely to ever be repeated for sheer endurance and brilliance.

So, it pays to keep an eye on what Buffett is up to at any given time, especially during such an incredible bull run on the share market during very uncertain times as he approaches his 91^st birthday on 30 August.

While Buffett is famously generous with his folksy and pithy words of wisdom about investment, he is much more circumspect about what he is actually up to at Berkshire, preferring to keep his cards very close to his chest until he is forced to disclose changes to the company’s portfolio.

Buffett marking time with buybacks slowing

Interestingly, those most recent disclosures show that Buffett is essentially marking time at the moment – neither moving hard to buy any big companies where he sees value or even to buy back his own stock, with just US$6 billion used for that purpose.

None of that is very surprising because Buffett is famously patient given the sort of meaningful purchases that could move the needle for Berkshire don’t come along every day.

In recent years the massive war chest of cash at Buffett’s disposal – at least US$144 billion at the moment – has acted as a drag on returns but there have been a few pivotal times during his investing career when that cash pile has turned out to be pivotal in grabbing opportunities.

The slowdown in buying back Berkshire shares is probably an admission that at the current elevated share prices and with liquidity in Berkshire shares an issue, buying back too much might be an expensive mistake.

Buffett doesn’t appear worried about an imminent correction

Does all of this mean that Buffett is worried that the share market is getting toppy and that he is keeping the powder dry for a potential correction?

Maybe but the rest of Berkshire’s actions look more like a company that is happy to stay reasonably fully invested, albeit with a mountain of cash and borrowing potential standing at the ready in case opportunity knocks.

During the June quarter, Berkshire sold just US$1.1 billion of stocks, the lowest net sales in the past three quarters.

That is basically the actions of a company pruning the garden rather than preparing for an apocalypse, with a little trim here and there but nothing major happening – particularly compared to his rushed sales of airline stocks during the COVID-19 correction last year.

Berkshire businesses performing very strongly

Berkshire’s holdings in a massive slice of US businesses are now so large that they tend to perform like a proxy for the US economy and that was the case in the latest quarter, with profit up 21% to US$6.7 billion, driven by strong gains from its manufacturers, service companies and retailers.

Berkshire’s railroad company, BNSF, reported a record quarterly profit since Berkshire bought it with earnings of $1.5 billion pushed along by rising volumes and better productivity.

There were a few storm clouds on the horizon though, with inflation starting to manifest as higher costs for materials in home building and also insurance.

Inflation starting to hurt

Berkshire’s big car insurance company Geico was hurt by the widespread return to the road by US drivers as the economy re-opened which increased the number of accidents, leading to a 70% slump in underwriting profits.

Overall, though, the investing lesson that you would probably take from looking at Buffett’s latest moves would be to hang on and enjoy the ride and keep lots of cash available for grabbing opportunities should the occasion arise.

Which is fairly reassuring with regular share market records being set daily and the COVID-19 pandemic globally still causing plenty of worries about economic growth, despite massive amounts of stimulus.