What’s a value investor to do? Last week, Warren Buffett’s Berkshire Hathaway reported more than $55 billion in cash and cash equivalents in its 2014 second-quarter earnings report. The amount was a 55 percent jump versus the same period in 2013, says business news outlet Quartz, and is about double the amount of cash Buffett likes to keep on the balance sheet.
As Quartz notes, during the dark days of the recession Buffett spearheaded a number of large deals that used cash. Examples include Berkshire’s $26.7 billion acquisition of the Burlington Northern Santa Fe railroad, the company’s largest deal, to acquiring a sizable number of preferred shares in Goldman Sachs and General Electric, which, as Quartz notes, “looked anything but solid” during the financial crisis.
The transactions meshed perfectly with Buffett’s much vaunted value-investing strategy — buying undervalued assets in less than idyllic market conditions for long-term investment purposes. The aforementioned deals were possible because of Berkshire’s “dry powder,” or massive cash stockpile, Quartz notes.
As the capital markets have steadily improved, it has been a challenge for Buffet to find deals that support his value-investing strategy. Meanwhile, Berkshire businesses are throwing off $1 billion a month in free cash.
As Canada’s Financial Post notes, the other hindrance to doing deals is Bershire’s growing size: “few businesses are big enough to merit Buffett’s attention,” says the Post.