Berkshire Hathaway’s large inventory sale final quarter got here at a probably opportune time as Warren Buffett’s conglomerate now has a good larger hoard of money on its arms whereas the market is tumbling.
Within the second quarter, the corporate offered a web $75.5 billion price of inventory and practically halved its Apple stake within the course of. That helped increase its money pile to a recent document excessive of $276.9 billion from $189 billion within the prior quarter.
“The sale represents a basic rebalancing of the portfolio,” CFRA Analysis analyst Cathy Seifert instructed Fortune.
With Berkshire’s portfolio skewed so closely towards a handful of shares like Apple, there was the danger of an excessive amount of focus, she defined. Some profit-taking additionally might have been concerned, because the gross sales occurred when the broader inventory market was notching document excessive after document excessive.
It follows earlier strikes to trim the portfolio. In Might, Berkshire disclosed the sale of 100 million Apple shares, amounting to 13% of its stake on the time.
The large query is what Buffett will do subsequent with all of the money it has amassed as Berkshire’s funding portfolio has historically been a topic of intense curiosity amongst traders.
Buffett is legendary for being disciplined and shopping for solely when he sees an excellent discount. For years, he has bemoaned the dearth of offers available as valuations remained excessive. However with shares tanking, it might quickly be time to purchase.
“If the market correction continues to speed up, this could possibly be a fairly golden alternative for them,” Seifert mentioned.
Berkshire might additionally use its money to purchase an organization outright, and acquisition targets have historically been within the client, industrial, and insurance coverage sectors, she mentioned.
However with the enlargement of personal fairness, Buffett faces extra competitors on buyouts than he did 20 or 30 years in the past, Seifert identified. And if borrowing charges proceed to drop, valuations for personal firms might rise, she added.
Berkshire might additionally use its money to proceed shopping for again extra of its inventory. And because the firm’s conflict chest will get larger and larger, the query of paying a dividend for the primary time could possibly be raised extra. So long as Buffett is in cost, nonetheless, Seifert thinks that’s uncertain, noting he’s aware that he can be an enormous beneficiary of that call.
For now, Berkshire’s money is accruing curiosity revenue whereas it’s parked in U.S. bonds and different secure investments with regular yields. Whereas that simple cash rolls in, the corporate is unlikely to be in a rush to speculate.
“They don’t really feel overly pressured to deploy this money,” Seifert mentioned.