Berkshire Hathaway: Buy, Sell, or Hold?

Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) recently released its quarterly earnings report, revealing that the conglomerate holding company held a record high of $277 billion in cash and cash equivalents at the end of the second quarter of 2024. This huge cash position has sparked curiosity among investors, particularly about why Chairman and Chief Executive Officer Warren Buffett is accumulating it.

So, let's examine how Berkshire built its impressive cash hoard and what Buffett might have planned for it to determine whether it's time to buy, sell, or hold this blue-chip stock.

How Warren Buffett built Berkshire's stockpile of cash

Before getting into Berkshire's quarterly report, it's important to set up how and why it has so much cash. As a holding company, Berkshire owns a majority stake in more than 60 businesses ranging from insurance companies like Geico to household names like Dairy Queen and See's Candies.

Berkshire collects premiums upfront for its insurance businesses, like Alleghany Corporation and Geico to invest. This money, known as the float, has helped Berkshire build its impressive stock portfolio, which now has roughly 40 stocks worth about $300 billion.

Notably, Berkshire has been a net seller of stocks in 2024. Combined with its strong operating earnings through the first half of 2024, which were $22.8 billion, up 26% year over year, its cash and cash equivalents have soared. As of June 30, Berkshire's cash and cash equivalents exceeded the market capitalization of companies like Advanced Micro Devices and Pepsico .

Here's what Buffett is doing with Berkshire's cash

Buffett's cash strategy is likely driven, in part, by the attractive yields -- as high as 5.4% -- currently offered by Treasury bills , short-term securities issued by the U.S. Treasury with maturities of one year or less. In its latest quarterly earnings report, Berkshire Hathaway revealed that it held $237.6 billion in Treasury bills, exceeding the $195.3 billion held by the U.S. Federal Reserve as of July 31 this year.

In the past, Buffett has emphasized that Treasury bills serve as Berkshire's preferred position for the company's cash when it "can't find anything exciting in which to invest," citing that their safety and liquidity as advantages.

Estimating the potential interest income from the Treasury bills, Berkshire could earn nearly $12 billion during the next 12 months, assuming a 5% yield, with little to no risk.

Given the U.S. government's fiscal track record, the primary risk to Treasury bills is losing money to inflation. Buffett once wrote in an annual shareholder letter, "Over the long term, however, [Treasury bills] are riskier investments -- far riskier investments -- than widely diversified stock portfolios that are bought over time." Still, given that the current inflation rate in the U.S. during the past 12 months is 2.97%, the short-term risk to Treasury bills appears minimal.

U.S. Inflation Rate data by YCharts .

What else could Buffett do with Berkshire's cash?

Since Buffett views Treasury bills as a long-term risk, it's unlikely that he will continue to hold $237.6 billion of it in perpetuity. Berkshire has a long history of acquisitions, the most recent being the final 20% of Pilot Flying J, a chain of truck stops, at a price tag of $13.6 billion over several years. Before that, Berkshire acquired the aforementioned insurer Alleghany Corporation for roughly $11.6 billion in 2022.

Alternatively, Buffett could return its capital to Berkshire's shareholders through dividends and share repurchases . Despite his affection for dividend-paying stocks in Berkshire's stock portfolio, he has never issued one to Berkshire shareholders, leaving this option unlikely. Buffett does favor share buybacks at accretive prices and has repurchased nearly 12% of Berkshire's shares outstanding during the past five years. By repurchasing shares, existing shareholders see an increase in their Berkshire ownership stake without buying additional shares.

BRK.B Shares Outstanding data by YCharts .

No matter what Buffett or his investment managers decide to do with Berkshire's cash pile in the long term, the company will always hold a minimum of $30 billion in cash and cash equivalents. That's because, beyond its responsibility as an insurer, Buffett has pledged "extreme fiscal conservatism" to its shareholders.

Buffett wrote in his most recent annual shareholder letter, "In most years -- indeed in most decades -- our caution will likely prove to be unneeded behavior -- akin to an insurance policy on a fortress-like building thought to be fireproof. But Berkshire does not want to inflict permanent financial damage."

Is Berkshire Hathaway stock a buy?

Berkshire Hathaway stock is up about 21% in 2024 and has generated an unparalleled compound annual gain of 19.8% from 1965 when Buffett took the helm. Some may argue that Buffett is overly cautious with Berkshire's cash reserves. However, this approach strategically positions the company to take advantage of a market downturn, making Berkshire an ideal choice for investors seeking a hedge against such risks.

Collin Brantmeyer has positions in Berkshire Hathaway and Netflix. The Motley Fool has positions in and recommends Advanced Micro Devices, Berkshire Hathaway, and Netflix. The Motley Fool has a disclosure policy .