New Year, Same Old Issues For Berkshire Hathaway

In early 2022, Warren Buffett’s company, Berkshire Hathaway, surpassed Meta (formerly Facebook) in market value. Despite this success, and as Berkshire releases its latest earnings and annual letter to shareholders, some of the biggest issues the company will face in the future have not changed.

Berkshire’s holdings have always been concentrated in a few large stocks. Now, however, instead of that concentration being in a handful of financial and consumer stocks, such as Wells Fargo, American Express, Coca-Cola, and Gillette, it is in the market’s largest company, Apple. But if four companies could represent half of Berkshire’s stock portfolio in the past, it may make sense in the current technology-dominated market for the biggest company in the world to represent more than half.

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“No single stock has ever reached the value of the operating companies,” said Edward Jones Analyst James Shanahan. “There has never been a position that large. But don’t forget, the way we’ve been thinking about it is that the operating companies are largely ‘old economy’ and industrials, manufacturing, retail, services, and transportation. The pivot to tech, namely Apple, as an investment provides some balance to that.”

Berkshire’s last reported cash value was similar in size to its Apple stake at just under $150 billion. In an effort to mitigate this issue, Berkshire has been aggressively buying back its own shares in recent years. However, it has refrained of late from using this cash to make any large mergers-and-acquisitions deals.

Still, long-time Berkshire expert and George Washington University professor Lawrence Cunningham said he wishes Buffett would talk about the cash problem in a new way and not just as a stockpile that has to go to M&A. He believes that Berkshire merely needs to hold more cash on its balance sheet than it ever has historically given the tumultuous world in which we live today.

Other ways to use the cash, including as a dividend, have been speculated about for years. However, Buffett has long been averse to forcing a taxable event on shareholders, and the fact that there has been no dividend to date seems to suggest that if a dividend is indeed coming, it will not be until a post-Buffett era at Berkshire. No matter what it chooses to do with its vast quantities of cash, Berkshire has a lot to work with, and many of its investors are hoping it will do something to offset its massive stake in Apple, regardless of the recent success of this position.