Berkshire Hathaway (BRK-A, BRK-B) is up in premarket trading this morning after the big -- some might say sprawling -- company led by investing icon Warren Buffett released earnings over the weekend. They reported a profit of $8.48 billion, representing a 28% year-on-year gain in profits on the back of a strong quarter from multiple companies that come under their umbrella. Their cash position also soared to record levels, with $167.6 billion in cash and equivalents on the books. Buffett, however, in his letter to shareholders, was less than bullish about the near future. He said that he expects Berkshire to “do a bit better than the average American corporation,” but that anything more would be “wishful thinking.”
In an era when self-promotion, bragging, and hyperbolic forecasts are considered desirable traits rather than faults, that kind of honesty is probably a bit jarring to some people. But to those who are familiar with Buffett, neither his blunt words nor anything else about the report and letter are particularly surprising.
First, releasing earnings at the weekend and accompanying them by a letter rather than an analysts’ call is not what some people might expect. To Buffett watchers, though, it makes perfect sense. Yes, they are a conservative company in terms of the businesses that they are in, but Warren Buffett has built his fortune by being able to resist the urge to conform, and relentlessly does what he thinks is best for his shareholders. Giving them time to read and focus on Berkshire’s earnings by releasing them on a day off and issuing an accompanying letter that can be read and reread at leisure rather than scheduling a call both make perfect sense in that context.
Then there is that massive cash position at a time when the major stock indices are at record highs. To the uninitiated, that might suggest a waste of resources, but Buffett once famously said that investors should be greedy when others are fearful and fearful when they are greedy. With that in mind, a big cash position right now makes perfect sense. Of course, it also suggests that in the mind of the so-called “Sage of Omaha,” we are all being a bit greedy at the moment, thus maybe making it a time to be a little fearful.
However, the cautious forecast tells us that it is not yet time to panic either. Warren Buffett thinks in much longer terms than most modern investors, and if he doesn’t see any outperformance by his fund, it is because he doesn’t see a near-term opportunity to deploy all that cash. He would only do so if he sees good value in a company, so the fact that he hasn’t done so since 2022 is quite telling. However, his having no plans to make a big move soon is also quite reassuring to stock investors.
Last and by no means least, is Berkshire Hathaway’s portfolio profile. He is not one to chase the latest fad or look for a young company that might or might not become the next big thing. Nor is he known for “activist” investing, buying a big stake in underperformers in order to take them over and make changes. Rather, while he is not averse to buying into new technology, his first priority is always mature, well-run companies that will be accretive to Berkshire’s earnings immediately and return cash, but that are undervalued at any given moment.
These are all lessons that long-term investors can learn. Investing in the style of Berkshire Hathaway is not sexy or exciting, but over long periods of time, it is extremely rewarding. You don’t have to trade aggressively or latch onto what is hot at any given time. You just have to invest in quality companies and stay the course through the inevitable ups and downs of the economy and the market, hoarding cash during the good times that can be invested when the market drops. It sounds simple and really it is, but Buffett stands out because, as logical as his style may be, it is rare to find someone who sticks to it in as disciplined a way as he has for decades. All investors should consider that when tempted to buy high or take big risks; sometimes, boring is good.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Martin Tillier
Martin Tillier spent years working in the Foreign Exchange market, which required an in-depth understanding of both the world’s markets and psychology and techniques of traders. In 2002, Martin left the markets, moved to the U.S., and opened a successful wine store, but the lure of the financial world proved too strong, leading Martin to join a major firm as financial advisor.
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