Berkshire Hathaway Cash Balances Are Telling A Story

Berkshire Hathaway reported a record high cash balance at the end of 2023 to the tune of $167.64 billion which appeared odd to market participants.

The shares of Berkshire Hathaway (BRK.B) have risen 14.15% YTD and 33.65% over the last year which has been good enough to beat the S&P 500. However, there has been a lot of debate surrounding Berkshire’s cash balances and how that relates to the company’s view on financial markets.

Cash Balances

Berkshire Hathaway reported a record high cash balance at the end of 2023 to the tune of $167.64 billion which appeared odd to market participants. Some investors felt that Berkshire ought to be more invested in the stock market or at the very least buying up smaller companies as the U.S. economy continues to expand.

The truth is that Berkshire Hathaway was actually a net seller of stock investments in 2023 while the company managed to improve its operating earnings. The combination of the two events led to Berkshire’s cash balance expanding at the end of last year to reach $167.64 billion which was a 31% increase from the end of 2022.

As of right now, the company has $133.4 billion of that cash invested in treasury bills that are yielding approximately 5.3% in the midst of a bull market for stocks. Many traders are starting to believe that this could spell doom for the stock market as many see Warren Buffett’s actions as a market leading indicator.

Rising Cash Balance, Rising S&P 500

However, there might be another way to look at Berkshire’s cash balance and relate it to markets. In 2022 Berkshire’s cash balance declined 12.4%, meaning the company deployed capital, in a year where the S&P 500 declined by 17.9%.

As stock markets declined, Berkshire CEO, Warren Buffett, put cash to work by purchasing all the discounted securities he could find. Then as the S&P 500 rose 20.6% the following year (2023), Berkshire sold shares which led to their cash figure swelling on the balance sheet.

The same correlations can be observed in 2020 and 2021 when both Berkshire cash balances and the S&P 500 rose in tandem, there might be a direct correlation here. Perhaps market participants need not be afraid when Berkshire’s cash balances are rising, perhaps they should be fearful when those balances start declining.