$271 Billion 🤯

We can’t call this a cash pile anymore. It’s way too big for that. We’re talking about a full-blown Scrooge McDuck-style money bin at this point.

Well, Warren Buffett wasn’t kidding when he said that Berkshire Hathaway’s cash pile would likely exceed $200 billion in Q2 2024.

But I certainly wasn’t expecting the cash number that we got.

$271 billion. 🤯

I’ve been trying to wrap my head around that number for the past two days and it still doesn’t seem entirely real.

Berkshire’s mind-blowing cash total — and the huge sale of Apple stock that precipitated it — dominated the conversation surrounding the company’s quarterly earnings report. And, incredibly, that number doesn’t even include the $3.8 billion (and counting) from Buffett’s recent trim of his Bank of America holding.

I’ve said it before: We can’t call this a cash pile anymore. It’s way too big for that. We’re talking about a full-blown Scrooge McDuck-style money bin at this point.

I like to picture Buffett swan-diving into the mountains of cash and Treasury bills, dreaming of the next elephant that he can bag for Berkshire. And, with $271 billion, he can afford to dream really big.

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(1) So how did Berkshire Hathaway wind up with that eye-popping cash total?

In large part from selling nearly half of its remaining Apple stock.

After offloading a small amount in Q4 2023 and then another 13% of the position during the first quarter, Buffett seriously ramped up the selling with another 390 million shares of AAPL 0.00%↑ heading out the door.

And there’s no real reason to expect Buffett’s Apple exodus to stop there.

Especially if the iPhone maker continues to trade at such a lofty valuation.

(Full disclosure: I’m one of those sickos who didn’t mind — and even kinda liked — the outsized investment in Apple. But I’m a dyed-in-the-wool coffee canner who hates to sell anything, so your mileage might vary on that. Still, while the magnitude of last quarter’s Apple sell-off surprised me, the writing was clearly on the wall that Buffett would continue to trim this position.)

I will leave it to others to speculate on what Buffett’s move to cash means — an impending market correction, widespread overvaluation, etc. — but it’s probably safe to say that he’s not feeling particularly bullish these days.

But it perfectly positions him — and Berkshire — for days like today. As I write this, futures are down 3-5% and people are coming out of the woodwork demanding an emergency interest rate cut to head off a recession. I try not to concern myself with all of that, but it’s undeniably true that there’s no one else I’d rather have surveying the potential wreckage and deploying capital on my behalf than Warren Buffett.

And, with $271 billion, the world is his oyster.

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(2) While waiting for Berkshire’s 10-Q to drop on Saturday morning, I was re-reading an old issue of Outstanding Investor Digest and came across this quote from Mark Holowesko of Templeton Funds.

We’re not going to force our cash into stocks that we believe are overvalued. Given our large cash inflows, we’d much rather defend high cash levels than defend why we bought stocks that didn’t meet our criteria or defend why we paid up for things just because we had the cash.

I think Warren Buffett would agree with that.

While some people angst over Berkshire holding so much cash — and plenty felt this way when the number was $100 billion, let alone $271 billion — I rest easy knowing that Buffett has so much dry powder with which to attack the market.

I’d rather he remain patient — eschewing the temptation to “force our cash into stocks that we believe are overvalued” — and carefully pick out just the right pitch to swing at. That inevitably means good things for Berkshire shareholders.

Some might see Berkshire’s cash total as inefficient. I prefer to call it disciplined.

Plus, he might get a chance to spend some of this cash sooner rather than later. Occidental Petroleum is back under $60 per share and who knows what else could happen if the market craters today.

FYI: If my repeated use of $271 billion doesn’t match up with the cash number you see elsewhere ($277 billion), that’s because I don’t include cash from “Railroads, Utilities, & Energy” in my total. Berkshire Hathaway Energy, BNSF, etc. need that cash for their own operations. Plus, I’m pretty sure this is how Buffett frames Berkshire’s cash total in his slides at the annual shareholders meeting.

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(3) Another unheralded contributor to that cash number is that Warren Buffett slammed the brakes on share repurchases in the second quarter.

He spent just $345 million on share repurchases — with most of that coming in April and none at all in June. And, if my back-of-the-napkin math is correct, he did not buy back any shares in the first three weeks of July either.

That’s a far cry from the $2.6 billion spent on repurchases in the first quarter.

For several years now, consistent share repurchases served to soak up excess capital — but, as Berkshire’s share price continues to rise, that obviously becomes less and less attractive. And, judging from the lack of buybacks in June and most of July, we’ve now reached that point.

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(4) Let’s not lose sight of Warren Buffett and Charlie Munger’s preferred performance metric — operating earnings — amid the Apple and cash frenzy.

This shows the results of the conglomerate’s many owned businesses, which too often get swallowed up by a misleading net income number. In Q2 2024, Berkshire posted an impressive 15.5% gain in operating earnings — which, once again, was fueled by an insurance segment firing on most cylinders.

GEICO continued to surge with $1.79 billion in pre-tax underwriting earnings, good for a cool 247.5% increase year over year. The auto insurer posted an 82.9% combined ratio — even as it took steps to stem a consistent decline in policies-in-force by boosting advertising expenses.

And it worked: “The rate of decline in policies-in-force slowed in the first half of 2024, driven by increased new business and higher retention rates.”

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(5) Outside of insurance, the rest of Berkshire’s operating businesses were a mixed bag.

• BNSF Railway slightly increased its operating profit to $1.823 billion, but saw after-tax earnings drop 2.9% because of a $394 million court judgment stemming from illegally running train cars across Swinomish tribal land in Washington. “Excluding the impact of litigation costs, our earnings and operating ratio showed solid improvement,” said the railroad. A combination of cost controls and traffic volume gains — led by consumer products up 15.0% — led to this “solid” result. Baby steps, but the first bit of good news out of BNSF in quite a while.

• Berkshire Hathaway Energy also got hammered with a $251 million pre-tax loss accrual from the West Coast wildfires. Which seemingly explains the big 37.9% drop in earnings at the U.S. utilities segment.

• I’ll dive into the “Manufacturing, Service, and Retailing” results more on Friday, but a mostly-flat performance from Manufacturing was dragged down by a 20.1% decline in Service & Retailing.