With a market capitalization of around $1 trillion, Berkshire Hathaway (BRK.A +2.73%)(BRK.B +2.53%) is a very large company. That's an important fact to consider when you think about what CEO Warren Buffett and his team have been doing so far in 2024.
Although nothing big happened on the acquisition front in 2024, investors should be prepared for big news in 2025 and beyond, given some other things that transpired at the company in 2024.
It takes a lot to move the needle at Berkshire Hathaway
Size matters when it comes to companies. That's highlighted clearly with Berkshire Hathaway's most recent "big" stock investments. The business news headlines were filled with commentary about the company's purchase of shares in Pool Corp. (POOL 1.08%) and Domino's Pizza (DPZ 0.76%).
With Pool, which sells pool supplies, Berkshire Hathaway bought around $150 million or so of stock for a roughly 1% stake in the company. The Domino's Pizza investment amounted to $550 million and a 3.6% stake.
Image source: Motley Fool.
When Warren Buffett buys a stock, investors generally pay close attention because of his incredible long-term success. That makes sense, but $700 million of investments for a company with a $1 trillion market cap? Well, that's just not a huge deal.
Even if those two investments turn into massive successes over time, as so many of Buffett's investments have, they aren't going to move the needle on the top or bottom line. Buffett himself explained the problem to investors in the company's 2023 annual report.
There remain only a handful of companies in this country capable of truly moving the needle at Berkshire, and they have been endlessly picked over by us and by others. Some we can value; some we can't. And, if we can, they have to be attractively priced. Outside the U.S., there are essentially no candidates that are meaningful options for capital deployment at Berkshire. All in all, we have no possibility of eye-popping performance.
Buffett is preparing to move the needle in 2025 and beyond
This is where the really important moves Buffett made in 2024 come in. Berkshire Hathaway sold shares, including in Apple and Bank of America. That materially increased the size of the cash hoard sitting on the company's balance sheet.
To put a number on that, at the end of 2023, Berkshire's cash balance was just shy of $168 billion. By the third quarter of 2024, that had ballooned to roughly $325 billion. The $700 million of investments Buffett made in Pool Corp. and Domino's Pizza didn't even make a dent in that giant cash pile.
BRK.A cash and short-term investments (quarterly), data by YCharts.
But don't just think about today -- when you look at Buffett's decisions, you need to think down the road. That's because his approach is largely focused on the long term, with the overall goal of buying great companies at reasonable prices. Then he just sits back and lets the management of those companies do their jobs as they grow the business. Buffett -- and Berkshire Hathaway shareholders -- benefit from that growth.
NYSE: BRK.B
Key Data Points
There's one more notable fact. Buffett doesn't have a problem sitting on cash if he can't find anything he wants to buy. With the S&P 500 index near all-time highs, it is hardly shocking that he isn't finding great stocks trading at reasonable prices.
What he appears to be doing is selling stocks that have appreciated materially and socking away cash for future acquisitions -- a lot of cash since, as he noted, it takes a lot to move the needle at Berkshire Hathaway.
No telling when, but Buffett is ready now
What Buffett is likely preparing for is a bear market, when asset prices will be more attractive. There's no way to know when the market will turn south; it could be in 2025, it could be later. But whenever the next opportunity comes along, Berkshire Hathaway will have the cash to act on it.
And that's the most important takeaway from 2024 when it comes to Buffett and the company he runs. At some point, there's likely to be a very large investment, one that makes Pool Corp. and Domino's Pizza look like child's play. Until that opportunity comes along, however, Buffett will happily wait and build more cash.
