U.S. stocks are higher in early Monday afternoon trading, with the Dow Jones Industrial Average (DJINDICES:^DJI) and the S&P 500 (SNPINDEX:^GSPC) are up 0.86% and 0.84%, respectively, at 1:30 p.m. EST.
Warren Buffett's insurance-to-railroad conglomerate Berkshire Hathaway filed its form 13F early this morning. The document, which details Berkshire's stock holdings at the end of the third quarter, shows that Buffett reduced his position in Goldman Sachs Group Inc and Wal-Mart Stores, by 13% and 7%, respectively.
Buffett told CNBC this morning that the sales are linked to Berkshire's $31.7 billion (equity value) acquisition of Precision Castparts Corp., adding that "this is not a reflection of a loss of confidence in either Walmart or in Goldman Sachs."
In order to fund the deal -- the largest ever acquisition for Berkshire -- Buffett said he plans to put up roughly $22 billion of Berkshire's cash and borrow the remaining $10 billion.
Although there is no reason to believe Buffett isn't being earnest, the numbers don't appear to justify the stock sales.
Berkshire Hathaway had $56.2 billion in cash and equivalents on its balance sheet at the end of the third quarter. Even if we subtract $22 billion for Precision Castparts, $3.3 billion in anticipated fourth-quarter capital expenditures for the railroad, utilities, and energy business, and let's say $2 billion for acquisitions by subsidiaries (Berkshire spent $4.8 billion spent during the first nine months 2015), we're left with $28.9 billion.
That would appear to leave an extra cushion above the $20 billion Buffett has said is Berkshire's "working level for liquidity." That is all the more true in comparison to his $10 billion "absolute minimum."
(And that calculation doesn't account for the fact that Berkshire generates billions of dollars in cash from operations every quarter. The Precision Castparts transaction is expected to close in next quarter.)
Buffett has always been effusive in his praise for Goldman Sachs publicly, never more so than when invested $5 billion in Goldman preferred shares in Sept. 2008, eight days after Lehman Brothers filed for bankruptcy. However, I'm not convinced he thinks Goldman is a terrific business as far as its outside shareholders go, i.e., those shareholders who don't also happen to work there.
Keep in mind that Berkshire Hathaway "inherited" the Goldman shares when it exercised warrants that were part of the preferred share investment mentioned above.
The use of "inherited" refers to the fact that Berkshire received the warrants at no cost and, furthermore, Buffett eventually modified the terms of the warrants so that Berkshire made no cash outlay when it exercised them.
The conclusion that offers itself is that Buffett requires exceptionally favorable terms in order for Berkshire to become a Goldman equity shareholder, and he has no interest in committing cash to that end.
In that context, then, it's hardly surprising that when Buffett wants to raise cash, the Goldman position is first on the "chopping block." It's not a core position, and it never will be.