Berkshire Hathaway (BRKA 0.22%)(BRKB 0.57%) owns dozens of well-known businesses as well as a stock portfolio worth about $300 billion. But over the past few years, the biggest source of frustration among investors hasn't had anything to do with either of those things. It's the hundreds of billions of dollars in cash on Berkshire's balance sheet that is earning low-single-digit returns, while the S&P 500 has gained 15% or more in the typical year.
It looks like Berkshire's new CEO, Greg Abel, is putting some of that to work. Berkshire has announced two major investments in just two days. And while by themselves, they aren't likely to be needle-movers, if this pattern continues, it could be a big deal for the company and its investors.
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Berkshire has invested more than $18 billion in two days
A few days ago, we learned that Berkshire Hathaway had agreed to acquire Taylor Morrison (TMHC 0.04%) for $8.5 billion, including the assumption of debt. This is a long-term bet on the U.S. housing market, which, quite frankly, has been agonizingly slow in recent years. This is a reason why Taylor Morrison was trading for less than nine times earnings prior to the announcement. Berkshire already owns manufactured home builder Clayton Homes, and this could be a logical next step in building a combined new home platform.
The next day, Berkshire announced that it would invest $10 billion in Google parent Alphabet (GOOGL +4.79%)(GOOG +4.94%) as part of the tech giant's plan to raise $80 billion to fund AI infrastructure. Berkshire has been building an Alphabet stake in its portfolio in recent quarters, and this investment cements it as a core holding for Berkshire and marks a big bet on the AI boom.
Why investors should pay attention
To be sure, $18 billion is less than 2% of Berkshire's market cap. Even if the Taylor Morrison acquisition becomes a multi-bagger business for Berkshire and the Alphabet investment ends up doubling or tripling, it isn't going to be too much of a needle-mover.
However, if Abel and company can figure out ways to invest $8 billion here and $10 billion there at a steady cadence, it could start to add up to a significant portion of the cash stockpile being put to work. Just to illustrate what I mean, let's say that Abel is able to find attractive ways to deploy $200 billion over the next couple of years. Even if the investments produce 10% annualized returns going forward, that would translate to $20 billion per year from new investments -- a meaningful amount that is far greater than the roughly $7 billion Berkshire would generate from a similar amount invested in Treasuries.
