Cash is pil­ing up faster than War­ren Buf­fett can in­vest it

Daily Local News (West Chester, PA) - - WEATHER - By Josh Funk

OMAHA, NEB. >> War­ren Buf­fett has the kind of money prob­lem most peo­ple would envy: a grow­ing moun­tain of cash.

Nearly $73 bil­lion piled up at Berk­shire Hath­away by mid-sum­mer, more than Buf­fett’s con­glom­er­ate has ever held be­fore.

And the to­tal con­tin­ues grow­ing ev­ery day Buf­fett doesn’t make a ma­jor in­vest­ment be­cause Berk­shire’s 90-odd busi­nesses gen­er­ate roughly $1.5 bil­lion in cash ev­ery month.

Buf­fett’s op­tions in­clude buy­ing en­tire busi­nesses, pick­ing up a few mil­lion shares of stock or in­vest­ing more in com­pa­nies Berk­shire al­ready owns, such as BNSF rail­road and the util­i­ties of Berk­shire Hath­away en­ergy.

So far, Buf­fett ap­pears to be mostly sit­ting on the cash since Jan­uary, when Berk­shire com­pleted its big­gest ac­qui­si­tion in its his­tory, a $32.36 bil­lion deal for avi­a­tion parts maker Pre­ci­sion Cast­parts.

“I think he’s look­ing for the right price on some­thing out­stand­ing,” said in­vestor Andy Kil­patrick, who wrote “Of Per­ma­nent Value: The Story of War­ren Buf­fett.”

Of course, not all of Berk­shire’s cash is avail­able be­cause Buf­fett wants to keep at least $20 bil­lion on hand at all times just in case Berk­shire’s in­sur­ance com­pa­nies have to pay a big claim or some other need arises.

But Buf­fett says he’s al­ways on the hunt for size­able ac­qui­si­tions that would fit well in­side Berk­shire, but he won’t pay more than he thinks a com­pany is worth.

Buf­fett will only go after com­pa­nies that fit his cri­te­ria for large, proven busi­nesses he can un­der­stand and that have an en­dur­ing com­pet­i­tive ad­van­tage.

“It’s hard to tell what he might be look­ing for,” said Ge­orge Mor­gan, who teaches fi­nance at the Univer­sity of Ne­braska at Omaha. “All we can do is wait and see.”

Buf­fett never dis­cusses what he might buy be­fore­hand, and he doesn’t talk much about all the deals he says no to.

But that doesn’t stop in­vestors from guess­ing what Buf­fett might buy next. Mor­gan’s fa­vorite idea is that Berk­shire might buy Mars Candy if the fam­ily that con­trols that pri­vate­ly­held firm ever wants to sell. Buf­fett has long used Snick­ers candy bars as the ex­am­ple when he ex­plains the con­cept of a durable com­pet­i­tive ad­van­tage.

The fact that Mars now plans to buy out Berk­shire’s $2.1 bil­lion in pre­ferred stock in its Wrigley gum unit may sour spec­u­la­tion about Buf­fett adding an­other candy maker along­side Berk­shire’s See’s Candy, but the re­pur­chase will add even more cash to Buf­fett’s pile for other in­vest­ments.

Other in­vestors spec­u­late that Berk­shire might con­tinue ex­pand­ing its util­ity unit. Over the past few years, Berk­shire has spent $5.6 bil­lion to buy Ne­vada util­ity NV En­ergy in 2013 and an­other $2.7 bil­lion to buy Cana­dian power trans­mis­sion provider Al­taLink in 2014.

Buf­fett has said that Berk­shire will likely team up again with the 3G Cap­i­tal in­vest­ment firm at some point. They al­ready worked to­gether to buy Kraft Foods and Heinz, but it’s not clear when the next deal in­volv­ing 3G might come.

In the cur­rent in­ter­est rate en­vi­ron­ment, Berk­shire is earn­ing very lit­tle on its moun­tain of cash, but Buf­fett isn’t likely to feel much pres­sure from share­hold­ers to make a quick ac­qui­si­tion or start pay­ing a div­i­dend for the first time since he took over Berk­shire in 1965.

After all, Buf­fett still con­trols nearly one-third of the vot­ing power of Berk­shire’s stock, and two years ago Berk­shire share­hold­ers over­whelm­ingly re­jected the idea of a div­i­dend.

And Berk­shire share­hold­ers don’t have to look back very far to see how valu­able a pile of cash can be.

In the wake of the fi­nan­cial cri­sis of 2008, Buf­fett of­fered bil­lions in fi­nanc­ing to Gold­man Sachs, Gen­eral Elec­tric, Har­ley-David­son and oth­ers in re­turn for steep in­ter­est pay­ments and, in some cases, pre­ferred stock.

But un­til Buf­fett finds his next deal he’ll keep do­ing what he has for decades: read more busi­ness re­ports, take the oc­ca­sional phone call and wait for the right pitch.

Buf­fett com­pares in­vest­ing to base­ball, ex­cept that in­vest­ing is a game where the hit­ter can stand at the plate in­def­i­nitely waiting for the right pitch.

“The stock mar­ket is a no-called-strike game. You don’t have to swing at ev­ery­thing,” Buf­fett said in “The War­ren Buf­fett Way.” “The prob­lem when you’re a money man­ager is that your fans keep yelling, ‘Swing, you bum!’ “

NATI HARNIK — THE AS­SO­CI­ATED PRESS FILE

In this Sun­day file photo, Berk­shire Hath­away Chair­man and CEO War­ren Buf­fett plays bridge out­side the Bor­sheims jew­elry store, a Berk­shire Hath­away sub­sidiary, in Omaha, Neb. Buf­fett has a high-class prob­lem: cash is pil­ing up at Berk­shire Hath­away faster than he can in­vest it.

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