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  1. #1
    Senior Member JohnDoe2's Avatar
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    Why Is Warren Buffett Holding $96.5 BILLION Cash?

    Why Is Warren Buffett Holding So Much Cash?

    by Kristin Orman, Research AnalystSaturday, May 20, 2017

    Market Trends


    Warren Buffett’s Berkshire Hathaway (NYSE: BRK.B) has a few dollars burning a hole in its pocket.


    And it’s sending a strong message to Mr. Market. In Buffett’s view, the valuations of large cap and megacap companies are too high.


    But that doesn’t mean the rest of the market is. There are still a few value plays available to regular investors. You just have to think smaller.


    As this week’s chart shows, Berkshire Hathaway’s cash position has more than doubled since 2008. It now sits at $96.5 billion. Cash on the balance sheet has been steadily rising for the last five quarters.


    A Victim of Its Own Success


    Buffett likes to keep $20 billion in cash on hand. That way, Berkshire Hathaway always has plenty of firepower available when it runs across an attractive acquisition candidate.

    It’s having trouble finding companies to buy. That’s why the company has 4.8 times its preferred stockpile sitting on the books.


    Berkshire Hathaway is a victim of its own success.


    Its market cap has grown to around $400 billion. And as the company has gotten bigger, so, too, have the sizes of the companies it must acquire to move the needle. Today, Berkshire Hathaway’s target acquisition size is $5 billion to $20 billion.


    It’s been 15 months since the company made a significant acquisition.


    This led some Buffett watchers to speculate that the legendary value investor is done making megamergers.


    And at Berkshire Hathaway’s annual meeting, Buffett fanned the flames when he hinted that the company’s stock might pay a dividend soon.


    If Buffett can’t grow his shareholders’ money by investing it, then eventually, he’ll have to return it to them.


    But that doesn’t mean Berkshire Hathaway isn’t making any acquisitions. It’s still buying quality companies at compelling prices.


    Berkshire Hathaway’s Silent Additions Signal Midcap Opportunities


    The company makes dozens of smaller acquisitions each year. Most of the time, though, the public never hears about them.

    These acquisitions are typically “bolt ons” or “tuck ins” made by Berkshire Hathaway’s subsidiaries. Their sizes fall below Berkshire Hathaway’s $5 billion threshold.


    In other words, these midcap acquisitions aren’t large enough to require Buffett to disclose the details to shareholders. So most investors don’t hear a lot about them.


    But Berkshire Hathaway’s operating CEOs buy dozens of them every year.


    This shows that Buffett is still finding deep value plays in this market. The businesses are just smaller.


    So ignore the bearish sentiment surrounding Berkshire Hathaway’s growing cash hoard... and take a hint from the company instead.


    Rather than trying to squeeze value out of expensive megacap stocks, look downstream to midcap shares. You’ll find many of them are priced right.


    Alexander Green shares Buffett’s outlook on value investing. He knows that in today’s market, midcap stocks have much more room to grow than blue chips do. That’s why Alex created the Ten-Baggers of Tomorrow Portfolio. It’s a collection of fundamentally sound midcap stocks whose prices are set to rise 10-fold or more. To learn more, click here.

    http://www.investmentu.com/article/d...s#.WSDOJOvyvIU
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  2. #2
    Senior Member Judy's Avatar
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    Buffett is waiting for the tax cuts, that's why he's not investing. When Trump gets his tax reform package through, Buffet will cut it loose and use the cash to buy, invest and/or expand his existing companies. Everyone is waiting. That's why Congress blew it in March by not advancing that bill to the Senate, so tax reform could begin. The Freedom Caucus even though they might have meant well, made a terrible timing and political mistake. They created an unnecessary debacle, delayed the tax reform plan, and cost Americans a lot of jobs and investment for no valid purpose at all. It was just truly the epitome of .... STUPID.
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  3. #3
    Senior Member JohnDoe2's Avatar
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    From the article:

    Berkshire Hathaway always has plenty of firepower available when it runs across an attractive acquisition candidate.


    It’s having trouble finding companies to buy. That’s why the company has 4.8 times its preferred stockpile sitting on the books.


    Berkshire Hathaway is a victim of its own success.
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  4. #4
    Senior Member Judy's Avatar
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    Yeah, the article says that, but that's not the reason. They could have bought the oil refinery you're so upset that Saudi bought.

    Warren Buffet is probably the single biggest hypocrite in American business and politics. He claims as a DemoQuack he wants to pay more tax, no he doesn't. He's waiting for the tax cuts, because if he waits, all investment in refurbishing and turning around the business will be immediately tax deductible possibly this year, not depreciated over decades, while still having a 15% corporate income tax rate versus 35%.

    To me, Warren Buffet is the American version of George Soros.
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    Senior Member JohnDoe2's Avatar
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    Warren Buffett bets big on oil stocks - Feb. 17, 2016 - CNNMoney

    Feb 17, 2016 - At the end of 2015, Buffett purchased a sizable stake in oil pipeline ... has bought over $1 billion more of the stock just since the start of 2016.
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    Senior Member JohnDoe2's Avatar
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    Buffett's Berkshire takes stakes in four major airlines - CNBC.com

    Nov 14, 2016 - Buffett's Berkshire takes stakes in four major airlines ... Buffett exclusive to CNBC: Berskshire bought stake in LUV Monday, 14 Nov 2016 | 4:43 PM ET | 03:33 ... 30, and Berkshire's purchase of Southwest Airlines shares took ...
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  7. #7
    Senior Member Judy's Avatar
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    Buffet loves Trump! Loves his pipelines! Loves his oil expansion! Loves the Trump Bump in the stock market! Loves his tax reform!
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  8. #8
    Senior Member JohnDoe2's Avatar
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    Warren Buffett, Bill Gates say Trump tax cut plan won't help business ...

    May 8, 2017 - Warren Buffett and Bill Gates aren't buying into President Donald Trump's tax plan. In an interview with CNBC on Monday, both Gates and ...



    “It's a huge tax cut for guys like me”: Warren Buffett slams Trump's new Health Care Plan ...

    May 7, 2017 - Buffett said that Trump's new health care plan is “a huge tax cut for guys like me.” He also said that rising health care costs are what's holding ...
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  9. #9
    Senior Member Judy's Avatar
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    Gates said it wouldn't help the "tech sector".

    Buffet said it wouldn't help his companies because his rates aren't as high as we think they are. (?)

    Most businesses will benefit tremendously by the Trump corporate tax rate cuts.
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  10. #10
    Senior Member JohnDoe2's Avatar
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    Here's What Warren Buffett Is Buying and Selling -- Should You Join Him?

    Berkshire Hathaway's portfolio saw some big changes in the fourth quarter of 2016.

    Matthew Frankel
    (TMFMathGuy)

    Feb 16, 2017 at 7:47AM


    According to Berkshire Hathaway's (NYSE:BRK-A) (NYSE:BRK-B) latest SEC filing, Warren Buffett and company had an active fourth quarter in 2016. After sitting on a company record $85 billion cash hoard at the end of the third quarter, and having said that Berkshire spent $12 billion on common stocks in the wake of Donald Trump's election victory, investors have been wondering what Berkshire has been up to. Here's the answer.

    What Berkshire has been buying

    While we don't necessarily know the reasoning behind Berkshire's latest investments, or whether they were initiated by Warren Buffett himself or one of his trusted stock pickers, we do know what changed in Berkshire's portfolio during the fourth quarter. Here are the most notable buys:

    IMAGE SOURCE: GETTY IMAGES.

    1.
    Apple -- Berkshire already owned Apple (NASDAQ:AAPL), although the company's $2 billion stake wasn't a large amount by Berkshire's standards. During the fourth quarter, Berkshire's Apple stake nearly quadrupled to about 57 million shares, which represent more than 1% of all the outstanding Apple stock. It's interesting to note that Buffett's stock-pickers were the ones who initiated the Apple investment, but given the size of the increase, the latest Apple addition could have come from Buffett himself.

    This investment did not surprise me at all. I've written before how Apple still represented a compelling bargain at the price levels it was trading for during the fourth quarter, and that Berkshire should take advantage. Well, apparently, management agreed.


    2. Airlines -- Berkshire surprised many investors when it revealed its third-quarter 2016 investments in several airline stocks. After all, Buffett has spoken out against airline stocks as investments several times in his career,

    During the third quarter, Berkshire invested in American Airlines, Delta, and United Continental, and increased its stake in all three during the fourth quarter. At the same time the initial airline stakes were revealed, Buffett also said he made an investment in Southwest Airlines. He didn't specify the amount at the time, but we now know it's a stake worth more than $2 billion.


    3. Monsanto -- Berkshire revealed a new stake in Monsanto, of about 8 million shares valued at about $872 million. Monsanto currently trades for about $109 per share, and the company plans to sell itself to Bayer for $128 per share. If the deal goes through,

    Buffett stands to make a quick profit, but the market doesn't seem convinced at this point.


    4. Sirius XM -- The final major change was the addition of a nearly 167 million-share position in satellite radio operator Sirius XM. Granted, because of the company's $4.80 share price as of this writing, this stake translates into a relatively small (for Berkshire) $800 million investment.

    What Berkshire has been selling


    1. Wal-Mart -- Buffett has been gradually trimming his Wal-Mart stake for some time, but he sold a substantial number of his remaining shares. Berkshire's investment in the retail giant has been cut from about 13 million shares to 1.4 million. As I've mentioned, we don't know the reasoning, but my guess is that the success of online retailers like Amazon has changed the competitive landscape in a way Buffett doesn't like.

    2. Verizon -- Berkshire sold nearly all of its 15 million shares of Verizon during the quarter. Since Berkshire also unloaded its AT&T stake earlier in 2016, this didn't come as a huge surprise.


    3. Kinder Morgan -- Buffett bought about 20 million shares of Kinder Morgan in early 2016, and sold his entire position during the fourth quarter. Kinder Morgan has nearly doubled from its early 2016 lows, so this could be a matter of the valuation simply not looking attractive to Buffett anymore.


    4. Deere -- Just like Kinder Morgan, Deere has rallied sharply, up by about 43% over the past year alone. So, while we don't know for sure, this sale could potentially be due to a valuation issue as well.


    Should you follow Buffett's moves?

    You shouldn't necessarily follow Buffett's moves. For one thing, by the time we hear about what Buffett is doing, it can be a completely different market. Since the fourth quarter ended, the S&P has risen by more than 4%, and some of the stocks Buffett has bought have risen even higher than that. Apple, for example, has risen by nearly 17% since the end of 2016, and Apple was trading even cheaper for much of the quarter. While I don't necessarily think Apple is too expensive to buy right now, it's fair to say that Buffett and company likely got a far better deal on their Apple shares than investors could get now.


    ^SPX DATA BY YCHARTS

    In addition, while it can be fun to speculate, we don't really know why Buffett and Berkshire bought or sold any of these stocks. For that reason, it's important to do your own research and make your investment decisions based on what's best for you and your long-term investing strategy -- not just because a billionaire did it first.


    Matthew Frankel
    owns shares of Apple, AT and T, and Berkshire Hathaway (B shares). The Motley Fool owns shares of and recommends Apple, Berkshire Hathaway (B shares), and Kinder Morgan. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.

    https://www.fool.com/investing/2017/...elling-sh.aspx

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