Berkshire Hathaway (BRK.A -0.06%) (BRK.B -0.95%) is sitting on roughly $80 billion of cash, equivalents, and treasury bills. That means Warren Buffett has lots of money to spend on...something. But what? He's given us some clues.
A full transcript follows the video.
This video was recorded on May 8, 2017.
Gaby Lapera: It sounds like they're doing pretty well. But one of the things that I know Warren Buffett mentioned is they have a lot of money right now, and they're not 100% sure how to invest the float. What's going on?
Michael Douglass: One of the problems, when you get to the size of Berkshire Hathaway, which has a market cap somewhere around $400 billion, and you are writing so much insurance business and you have a lot of float and a lot of cash just sitting there, it becomes difficult to make acquisitions that are actually going to move the needle. If you think about it, if you have a $1 million business, if you find a $100,000-a-year business, that's a 10% gain. If you're a $100 billion business, $100,000 does not matter. That's been their issue -- they really need to do big, transformative acquisitions, and it's difficult for them to find them, particularly at a good value. You look at the stock market; it's been on a bull run for a long time. I think one of their struggles, probably, is that they're not able to get necessarily good businesses at a good price, or a fair price, because prices are so inflated. So, what they basically said is, "We're going to try to invest this money. If we're not able to, we'll consider raising the floor for share buybacks and start buying back Berkshire shares if that's the best use of the money," and they even hinted at possibly instituting a dividend at some point.
Douglass: Don't read too much into that.
Lapera: Historically, Warren Buffett has been really against dividends. He's been like, "I'm going to keep your money."
Douglass: "And I'm going to spend it making you more money, as opposed to just paying it back to you and doing nothing accretive to the business."
Lapera: Exactly right. And you mentioned also, they might increase the threshold for when they'll do share buybacks. Historically, I think he said it was below one and a half?
Lapera: 1.25 book, then it was worth him buying back shares of Berkshire Hathaway. But they might raise the floor a little bit, so maybe it will be one and a half or 1.75 for them to start buying back shares, because they just can't think of anything else to do with their huge amount of money. It's kind of a nice problem to have, I guess.