Buffett Runs Out of Ideas

Over the past year and a half, Berkshire Hathaway has been fairly active on the acquisition front but we have to wonder when Buffett will ever bag the elephant

Greggory Warren, CFA 8 May, 2014 | 11:47AM

While Berkshire Hathaway's (BRK.A/BRK.B) annual meeting is always entertaining, it hasn't typically been a big source of meaningful insights into the firm's operations. We can say that it has been an opportunity for shareholders to see and hear Warren Buffett and Charlie Munger respond to the questions a panel of journalists and financial analysts fire at them, as well as from the shareholders themselves. That said, between the pre- and postmeeting interviews the two men conduct, and the comments they make during the question-and-answer segment, we are always able to come away with a few nuggets of information that help to shape our thinking about Berkshire's operations, especially in relation to capital allocation and investments, and this year's meeting was no exception.

Berkshire faces a bevy of questions at this year's annual meeting. For several years now, the main focus of Berkshire Hathaway's annual meeting has been the question-and-answer segment that Buffett and Munger hold. The two men field questions from a trio of financial journalists, a trio of financial analysts, and from shareholders in attendance. This format supplanted the more traditional method of just taking questions from shareholders, and, in our view, has added a lot more value as it has helped to focus a substantial portion of the question-and-answer segment on more company-specific topics.

Berkshire's excess cash should be thought of as dry powder. Berkshire's sizable cash position continues to grow through the normal course of its business, and despite making investments and funding acquisitions over the course of the past two years, the firm still closed out 2012 and 2013 with more than $45 billion in cash and cash equivalents on its books. Buffett likes to keep $20 billion on hand as a backstop for the insurance business, which we believe is prudent, so the firm's excess cash balances have been north of $25 billion the past two years.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
American Express Co125.04 USD1.56
Berkshire Hathaway Inc Class A347,000.00 USD0.09
Berkshire Hathaway Inc Class B231.35 USD0.14
Coca-Cola Co53.85 USD2.03
International Business Machines Corp127.20 USD2.90
Procter & Gamble Co137.47 USD0.09
Wells Fargo & Co29.55 USD1.34

About Author

Greggory Warren, CFA  Greggory Warren, CFA, is a senior stock analyst with Morningstar.

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