Berkshire Hathaway holds $ 128.2 billion in cash, according to its quarterly report. Warren Buffett does not seem to have been impressed by the stock market rally.
Buffett, who turned the $ 528 billion conglomerate into the world's largest financial corporation, is known for his patience in discovering large deals, mostly acquisitions, for Berkshire.
However, as the company has not engaged in a prestigious acquisition for nearly four years and lost a long-time investor, analysts predict that Berkshire will soon use its resources to re-enter the stock market.
Dark Amount of Capital
As stated by CCN, the S & P 500 index hit its record on November 1st. A positive report on employment pushed investors to leave the bond market to turn to higher risk options.
Nevertheless, safe-haven assets, such as gold and high-yield bonds, are in great demand by investors, both in the US and foreign markets, indicating that investors remain cautious about the short-term trend. of the stock market.
The 14% increase in Berkshire's operating profit, fueled by the strong performance of Kraft Heinz and its rail business, further increasing the company's capital, led to additional investment expectations from the fund. of the society.
However, without any transaction in sight, according to Bloomberg, Berkshire is about to record the worst underperformance of the company in 10 years.
Since the beginning of the year, the S & P 500 index has clearly exceeded 22%. During the same period, Berkshire gained 5.7%, behind the stock market.
The conglomerate's decision not to spend its growing capital could stem from its anticipation of a downturn in the stock market, as it might consider that the current value of the shares is too high to penetrate.
But such a decision did not please some of its loyal investors. Last month, David Rolfe, head of investment at Wedgewood Partners, sharply criticized Berkshire and Buffett for lack of investment and "disobedience", saying the company's low investment has been difficult.
"Billions of dollars of recent investments in notable mistakes such as IBM, Lubrizol, Precision Castparts and Kraft do not inspire certainty that Buffett & Co. is still at the top of their game," said Rolfe.
Is Buffett losing contact?
Sharing Edward Rolfe's opinion, Jim Shanahan, an analyst with Edward Jones, said Berkshire could have made better use of his cash pile when the market retreated earlier this year.
"Whenever this market shrinks significantly, they will have a lot of capacity to put money to work," said Shanahan.
While Berkshire's numbers remain positive due to the cash-generating activities of the company, analysts have doubts about the relevance of the company's decision to retain significant transactions in this stock market.
Buffett and Berkshire may be looking for a more pronounced fall in the stock market as the end of the year approaches, as investors such as Peter Cecchini of Cantor Fitzgerald predict an 18% drop in the markets at the end of the year. beginning of 2020.