We always learn something when Berkshire Hathaway (BRK.A -0.76%) (BRK.B -0.69%) reports its quarterly results. Sometimes we get a sense of what its legendary chairman and CEO, Warren Buffett, is up to. And sometimes we find out what he isn't up to.
Berkshire's third-quarter results, released Monday morning, showed that Buffett is sitting on a $147 billion pile of cash. Here's what he's definitely not doing with it.
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Not a buyer's market
There's no question that Buffett is not buying many stocks these days. That's apparent from how much Berkshire's cash stockpile increased in the second quarter.
As of March 31, Berkshire's cash, cash equivalents, and short-term investments stood at $130.7 billion. Three months later, the amount had jumped to $147.4 billion. Berkshire's Q2 regulatory filing also revealed that the conglomerate's net sales of stocks totaled nearly $8 billion.
Why isn't Buffett buying many stocks, and is instead a net seller of stocks? It's almost certainly because of valuation. Nearly every valuation metric you can find shows that the overall stock market is overvalued right now.
Buffett has stated in the past that while he prefers to be more heavily invested in stocks, he will remain largely on the sidelines if the price isn't right.
A picky stock picker
Buffett probably did scoop up shares of a few companies during the second quarter. We'll soon find out exactly which ones when the company submits its 13-F filing.
The one stock we know for sure that Buffett did buy was Berkshire itself. However, the company's stock buyback was only $1.4 billion in Q2, down from $4.4 billion in the first quarter of 2023. You can rest assured that the reason this number fell so dramatically is that Berkshire's valuation has increased quite a bit this year.
It's a safe bet that any stocks Buffett did buy in Q2 other than Berkshire were attractively valued with respect to their earnings prospects. The legendary investor has made clear in the past that he will pass up any stock that doesn't meet this important criterion.
Where Berkshire's money is going instead
When you read or hear that Buffett has a huge cash stockpile, it's important to understand exactly what that means -- and doesn't.
First, don't think that Buffett literally has $147 billion or so of Berkshire's money in cash. Instead, Berkshire primarily parks its money in U.S. Treasury bonds. The company specifically stated in its Q2 report that $97.3 billion of short-term investments were in U.S. Treasury bills.
What's more, if you read the fine print, you'll discover that $24.5 billion of Berkshire's $50 billion in cash and cash equivalents were invested in Treasuries with maturities of three months or less.
Buffett isn't concerned in the least about Fitch's recent downgrade of the U.S. credit rating. He told CNBC last week, "There are some things people shouldn't worry about. This is one."
Follow the leader?
Investors shouldn't automatically copy Buffett's every move. The investing priorities for a giant conglomerate like Berkshire Hathaway could be different from your own. Also, it's important to remember that we usually only receive a delayed update on Buffett's actions. Market dynamics could have changed since his moves were actually made.
In this case, though, stocks in general have gotten more expensive since the end of the second quarter. Buffett's concerns about valuation are warranted. Investors would be wise to follow his lead by building up a stronger cash position and being highly picky about the stocks they buy right now.
You shouldn't always do what Buffett does. But it sometimes makes sense to not do what he's not doing.
