This hoard represents a huge pool of dry powder and also offers a lesson in how firms that are fortunate enough to have a cash surplus should manage those holdings. In Berkshire Hathaway’s case, a significant portion of this cash reserve is invested in U.S. Treasury bills.
Most companies only build up excess cash when they don’t have a good use for it, Koller said. “You usually try to minimize the cash,” he explained, “and have to think—what are my investment opportunities for the next three to five years?” And you have to make sure to have the cash flow to do it. Most operating companies minimize cash they can’t use pretty quickly, Koller said.
Bero expects Abel will only bring modest changes to Berkshire. The challenge for the new CEO is to set out a new vision without tarnishing “the legacy of the departing icon,” he said.
Buffett became CEO in 1970 after his investment partnership acquired Berkshire, then a textile business, in 1965. Since Buffett will remain as chair of Berkshire, he’ll still have a big say in how the company is run.
Meanwhile, Buffett, made it clear last weekend that he hasn’t been holding off on any investment opportunities to set Abel up to shine as the new CEO.
“I wouldn’t do anything so noble as to withhold investing myself so that Greg could look good,” Buffett quipped during the question-and-answer session at the annual shareholder meeting. Investors have been wondering when he will deploy Berkshire’s stockpile of cash on a bigger scale, however, it has made some smaller stock purchases.
“We’re running a business which is very, very, very opportunistic … We have made a lot of money by not wanting to be fully invested at all times,” Buffett said. Things get extraordinarily attractive occasionally, and the long-term trend is up, he said. Nobody knows what the market is going to do tomorrow, next week, or next month, he added.
