Warren Buffett: $130 Billion and Having Trouble Buying Anything

The cash problem at Berkshire Hathaway is still a problem.

Earlier this week, Berkshire Hathaway CEO Warren Buffett released his very popular annual shareholder's letter. The letter was shortly than usual, with Buffett choosing to focus on themes such as money managers and the market in general.

Over the past couple of years, Buffett has been saddened that he hasn't been able to deploy more of Berkshire Hathaway's growing pile of cash. Buffett buys businesses that throw off plenty of cash, though in recent years, in the face of ever-growing valuations, Buffett has had trouble finding anything to buy. Buffett is a patient man and he is not going to buy something that he feels is not a good value.

This has left Berkshire Hathaway with over $130 billion in cash. The company's many businesses are doing well, though Buffett obviously wants to pay Berkshire's cash into assets that produce a much higher return. T-Bills don't offer up much of a return and Buffett seems to be growing a bit frustrated.

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There have been a number of companies mentioned as potential acquisition targets for Berkshire Hathaway over the past couple of years, including General Electric, Nike and others.

General Electric has a number of issues - Buffett has said that he constantly analyzes the company, though would be more comfortable buying pieces of the conglomerate rather than the entire thing.

Nike has constantly been mentioned as a potential target, though Buffett has not really given any indication that they might be a potential target.

Buffett has offered a few hints as to what he is looking for - he wants an "elephant" that moves the needle, plus he wants a non-insurance company, as he has indicated that he wants to increase Berkshire Hathaway's non-insurance earnings.

The problem, as Buffett has constantly stressed, is that valuations are very high right now. This has led to a seemingly frustrated Buffett, who is likely hoping for some sort of a market pullback so that he can start deploying some of Berkshire's $130 billion+ in cash.

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According to Buffett, plenty of deals present themselves over the course of a year. The problem, according to Buffett, is that cheap money has increased the competition for deals (Buffett actually lost out on a couple of deals over the past year, which essentially never happens), which has made everything too expensive.

The good news for Buffett and his shareholders? The Trump tax cuts immediately increased the book value of Berkshire Hathaway by tens of billions of dollars.

The "bad" news? These same tax cuts are going to result in even more cash rolling in, which will increase Berkshire's cash pile even more, which may lead to an even more frustrated Buffett if the markets don't cool off.

Filed under: General Knowledge