**Berkshire Hathaway’s Cash Pile Reaches Record Level, Creating a Challenge for Warren Buffett**
In the second quarter, Berkshire Hathaway, led by Warren Buffett, reported a cash pile of $147 billion, while operating profits increased by 7% to $10 billion. However, this growing hoard of cash presents a challenge for Buffett as he struggles to find bargains in acquisitions or the stock market amid high valuations.
**Aggressive Pursuit of Stock Buybacks**
To address the challenge of finding attractive investment opportunities, Berkshire Hathaway has adopted a more aggressive approach to stock buybacks. In the second quarter, the company spent $1.4 billion on stock buybacks, exceeding the $4 billion spent in the previous quarter. This strategy, which Buffett once shunned, has become less attractive as Berkshire’s share price continues to rise.
**Earnings Performance of Business Units under Berkshire’s Umbrella**
While many of the business units under Berkshire’s umbrella, including insurance, railroads, and utilities, performed well in the second quarter, Buffett warned at the annual meeting in May that the majority of them could falter this year due to higher prices. Notably, BNSF Railway was among the exceptions, experiencing a decline in earnings.
However, Buffett’s prediction regarding the improvement of earnings at Berkshire’s insurance underwriting operations proved accurate. Profits in this sector jumped by 74% to $1.25 billion in the second quarter. Geico, which faced profitability challenges in the previous year, recorded positive results for a second consecutive quarter, benefiting from higher average premiums and lower advertising costs.
**Trimming of Stock Market Portfolio Contributes to Cash Pile**
In the first half of this year, Berkshire Hathaway sold over $18 billion of stock on a net basis, compared to a net purchase of $34 billion in the previous year. In the second quarter alone, the company bought $5 billion worth of stocks while selling close to $13 billion worth. The reduction in the stock market portfolio further contributed to the substantial cash pile.
**Fitch’s Downgrading of U.S. Credit Rating**
Despite Fitch’s recent downgrade of the U.S. credit rating from AAA to AA+, Buffett stated that it will not affect Berkshire’s business operations. He reassured that the U.S. dollar remains the reserve currency of the world, and Berkshire will continue to invest heavily in U.S. Treasurys. Buffett mentioned that Berkshire purchased $10 billion in U.S. Treasurys on multiple occasions and intends to maintain this investment strategy.
To summarize, Warren Buffett and Berkshire Hathaway face the challenge of finding attractive investment opportunities as their cash pile reaches record levels. The company has resorted to more aggressive stock buybacks but faces diminishing returns due to the rising share price. Despite concerns about the performance of various business units, Berkshire’s insurance underwriting operations and Geico have shown positive growth. The trimming of the stock market portfolio and Fitch’s downgrade of the U.S. credit rating have also contributed to the significant cash accumulation. However, Buffett remains confident in the U.S. dollar and continues to invest heavily in U.S. Treasurys.
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