Warren Buffett and the rest of Berkshire Hathaway's (NYSE:BRK-A) (NYSE:BRK-B) management have had a lingering problem for some time: Cash continues to build up on the balance sheet, and there hasn't been any attractive way to put it to work. At the end of 2017, Berkshire had more than $116 billion in cash and equivalents -- far more than the $20 billion or so Buffett likes to keep on hand.
To be clear, having a hundred-billion-dollar cash stockpile is a good problem to have, but it's still a problem. This is money that, instead of generating returns that can then be reinvested, is sitting around earning next to nothing in short-term treasuries.
Shareholders finally got some good news on this front. In Berkshire's first-quarter earnings report, the company's cash position went down for the first time in years.
Berkshire's cash stockpile -- where it stands today
As of March 31, 2018, Berkshire reported a total of $108.6 billion in cash in its quarterly report. This is down by about $8 billion during the first three months of the year. While it still leaves Berkshire with almost $90 billion more in cash than the company wants, it's definitely a step in the right direction.
Where did Berkshire's cash go?
Not only did Berkshire start 2018 with more than $116 billion, but its operating businesses had positive cash flow of about $7.6 billion during the quarter. The primary reason that figure now is lower is because Buffett and Berkshire's stock pickers have had success finding attractively priced investment opportunities in the stock market.
Just recently, it was revealed that Berkshire added another 75 million shares of Apple during the first quarter, and Berkshire's quarterly report indicates net equity purchases of nearly $14.8 billion in that time. Even if Apple was purchased at its first-quarter highs, this still leaves more than $1.5 billion that was used to buy other stocks -- not counting the proceeds from any stocks that were sold (like IBM, which Buffett announced was completely disposed of during the quarter).
We'll have to wait for Berkshire's upcoming 13-F to see exactly what was purchased, but the point is that Berkshire's stock-picking team had a much-needed busy quarter.
Could the rest of 2018 be full of more buying?
The stock market still is down significantly from its highs, so it's entirely possible that Berkshire's rather aggressive stock investing could continue. What Berkshire would really like, however, is to find a company to acquire in its entirety. Although we have no way to know what the company is looking at right now, some of Buffett's comments during Berkshire's annual meeting indicate that there may be a better environment for acquisitions than there was during 2017.
As an example, when asked about his two investment managers Ted Weschler and Todd Combs, Buffett pointed out that there's a deal under consideration right now that was brought to Berkshire by one of the two men. The tone a year ago was more to the effect of "we can't find anything attractive to invest in."
That's changed now -- at least in terms of stock investments. We'll have to wait and see if there are any acquisitions coming soon, but so far, 2018 is looking far more promising for Berkshire shareholders who have been patiently waiting for the company to put its cash to work.
Matthew Frankel owns shares of Apple and Berkshire Hathaway (B shares). The Motley Fool owns shares of and recommends Apple and Berkshire Hathaway (B shares). The Motley Fool is short shares of IBM and has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.