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Stepan Lavrouk
Stepan Lavrouk
Articles (575) 

Warren Buffett Bets Big on Berkshire Hathaway

Conglomerate made record share buybacks during the second quarter

When stock markets took a dive earlier this year, many people expected that Warren Buffett (Trades, Portfolio) would be doing some serious buying. After all, his Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) conglomerate was sitting on a huge cash pile (at the end of March, it had around $137 billion worth of cash and cash equivalents). It also seemed logical to expect that Buffett would do similar things in 2020 to what he did in the wake of the financial crisis.

However, Berkshire has been uncharacteristically quiet for the last few months. Perhaps it is because Buffett and his partner Charlie Munger (Trades, Portfolio) believed that there would be more virus-related impacts on the stock market. Or, perhaps the deluge of cheap financing unleashed by the Federal Reserve has made Berkshire an unappealing partner for cash-strapped firms, who now have the government to fall back on and don't need to rely on higher-interest deals with companies.

A growing cash pile

Whatever the reason for Berkshire's inaction, it has led to its war chest swelling to an even bigger size. As disclosed in the company's most recent filings, cash and cash equivalents (which mostly consists of short-term investments in U.S. Treasury Bills) now stand at $146.6 billion.

This is probably unsurprising to most, as the investor sold his positions in American Airlines (NASDAQ:AAL), United (NASDAQ:UAL), Delta (NYSE:DAL) and Southwest (NYSE:LUV). In terms of buying, all we know at this point is that Buffett has been buying up shares of Bank of America (NYSE:BAC), spending $2.1 billion over the last three weeks, which brings Berkshire's stake in the financial giant to almost 12% of all outstanding shares.

However, by far the biggest share-buying activity that Berkshire has reported is its own share buyback program. In the second quarter of 2020, it spent a record $5.1 billion on its own stock. Clearly, Buffett and his team believe that Berkshire's shares are currently undervalued relative to the market, and that buybacks are the best way that they can distribute some of that cash pile back to shareholders. Until other opportunities become cheaper, it seems unlikely that Berkshire will make any big moves.

Disclosure: The author owns no stocks mentioned.

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About the author:

Stepan Lavrouk
Stepan Lavrouk is a financial writer with a background in equity research and macro trading. Specific investing interests include energy, fundamental geoeconomic analysis and biotechnology. He holds a bachelor of science degree from Trinity College Dublin.

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