The latest results from Berkshire Hathaway Inc. show that the Oracle of Omaha has plenty of cash sloshing around.
And that could be a warning sign for a bull market that’s pushing ever higher, as well as clear evidence that Berkshire Chairman Warren Buffett is having a tough time putting the conglomerate’s money to work, according to Russ Mould, investment director at AJ Bell, which provides online investment platforms and stockbrokerage services.
“Yet another increase in the total cash pile at his Berkshire Hathaway, to $129.6 billion, despite $12 billion in net new investments in traded securities in Q2, suggests that master investor Warren Buffett is still having difficulty in finding value in U.S. — and perhaps global — stocks,” Mould said in a note to clients on Monday.
Here’s his chart showing how Buffett’s cash mound has grown and grown:
“This is something that investors should consider, as key indexes such as the S&P 500 SPX, +0.33% and FTSE 100 make heavy weather of getting back to, and breaking away from, the all-time highs they set earlier in the year,” said Mould.
As well, investors and executives should take note that “ultimate contrarians” Buffett and partner Charlie Munger are sitting on the sidelines when it comes to acquisitions.
Mould noted how Buffett warned in his annual shareholder letter in February of this very thing: Not enough good companies were available to buy at reasonable prices.
Yet research from Moody’s Analytics shows the value of global mergers and acquisitions shooting to $2.6 trillion in the first half of this year, just below a record set in 2007, said Mould.
“M&A tends to peak when animal spirits are running high and often when executives feel their own shares are expensive enough to make them a valuable acquisition currency (not that this is necessarily a good thing for the sellers and the recipients of those shares, namely investors),” he said.
He noted that Berkshire Hathaway’s cash pile grew in 1998-99, just ahead of the bursting of a tech-stock bubble, then again in 2005 to 2007, as markets again became frothy.
But then the Berkshire sage and company used the period from 2000 to 2003, and then 2007 and 2009, to buy assets at lower valuations as markets were melting down.