How Will Berkshire Hathaway Deploy Its $100 Billion in Cash?

After the market closed on Friday, August 4, Berkshire Hathaway released its Form 10-Q for the quarter ending June 30, 2017.  This filing revealed a record cash position of $100 billion as compared to $96 billion on March 31 and $86 billion as of December 31, 2016.

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Warren Buffett previously stated that Berkshire intends to hold a permanent cash position of $20 billion and would like to invest the remaining cash of $80 billion since it is currently earning a rate of return close to zero.  What are Berkshire’s likely options?

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There are three approaches that Berkshire is likely follow:

(1) Acquire one or more large companies such as its 2016 purchase of Precision Castparts for $32 billion and its 2010 acquisition of Burlington Northern Sante Fe for $26 billion (for the 77.4% it did not already own).  Warren Buffett will participate in friendly deals only and will avoid auctions.

(2) Partner with 3G Capital to provide $10 billion or more to acquire companies such as the acquisition of Kraft by Heinz (to form Kraft Heinz) in 2015.

(3) Common stock investments such as Berkshire’s 2016-17 purchase of shares in Apple which are currently valued at about $20 billion.  Berkshire’s equity investments equaled $137 billion on June 30.  (Warren Buffett’s portfolio managers, Todd Combs and Ted Weschler, each manage about $10 billion.)

Warren Buffett is extremely patient and will invest only when the opportunity is very attractive. With the stock market at all-time highs it is becoming more difficult to find undervalued stocks.  However, future market fluctuations should provide additional opportunities.

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David I Kass Clinical Associate Professor, Department of Finance Ph.D., Harvard University Robert H. Smith School of Business 4412 Van Munching Hall University of Maryland College Park, MD 20742-1815 Phone: 301-405-9683 Email: [email protected] (link sends e-mail) Dr. David Kass has published articles in corporate finance, industrial organization, and health economics. He currently teaches Advanced Financial Management and Business Finance, and is the Faculty Champion for the Accelerated Finance Fellows. Prior to joining the faculty of the Smith School in 2004, he held senior positions with the Federal Government (Federal Trade Commission, General Accounting Office, Department of Defense, and the Bureau of Economic Analysis). Dr. Kass has recently appeared on Bloomberg TV, CNBC, PBS Nightly Business Report, Maryland Public Television, Business News Network TV (Canada), Fox TV, American Public Media's Marketplace Radio, and WYPR Radio (Baltimore), and has been quoted on numerous occasions by Bloomberg News and The Wall Street Journal, where he has primarily discussed Warren Buffett and Berkshire Hathaway. He has also launched a Smith School “Warren Buffett” blog. Dr. Kass has accompanied MBA students on trips to Omaha for private meetings with Warren Buffett, and Finance Fellows to Berkshire Hathaway’s annual meetings. He is an officer of the Harvard Business School Club of Washington, DC, and is a member of the investment and budget committees of a local nonprofit organization. Dr. Kass received a Smith School “Top 15% Teaching Award” for the 2009-2010 academic year.