Greg Abel Starts Spending: $4.5 Billion of Buybacks and a Return to Buying Stocks
Berkshire's cash fell from a record $397 billion to about $365 billion in the second quarter as its new chief executive repurchased shares and bought equities for the first time in years.
For fourteen consecutive quarters, Berkshire Hathaway sold more stock than it bought and let its cash pile grow. In the second quarter, under a chief executive who is not Warren Buffett, that pattern broke.
Berkshire repurchased roughly $4.5 billion of its own shares in the quarter, up from about $235 million in the first three months of the year, and was a net buyer of equities to the tune of nearly $20 billion. Cash and equivalents fell to about $365.5 billion at the end of June from a record $397.4 billion three months earlier.
Why the cash got so large
The pile grew because Buffett could not find anything worth buying at prices he liked. Public equity valuations were high, private deals were being bid up by private equity firms with committed capital, and Treasury bills were paying enough to make waiting profitable rather than merely prudent.
That last point matters more than it sounds. With short rates at 3.50% to 3.75%, a $397 billion cash position generates well over $10 billion a year in interest income with no risk. Patience has rarely been so well compensated.
What Abel's first moves suggest
Greg Abel spent his opening quarter as chief executive net selling $8.1 billion of equities, then reversed course. Taken together, the buybacks and the equity purchases describe an executive willing to act on price rather than to hold cash as a matter of doctrine.
The buyback decision is the more revealing one. Berkshire repurchases shares only when management considers them cheap relative to intrinsic value, and the size of this quarter's repurchase is a statement about how the new chief executive views the company he inherited.
The succession question, answered by conduct
The concern shareholders voiced when the succession was announced was never about competence. It was about judgment under conditions Buffett had shaped for sixty years: the willingness to sit still, and the willingness to move enormous sums quickly when a rare opportunity appears.
Two quarters is a short record. But deploying $25 billion across buybacks and equities while the market sits at records is not the behavior of a caretaker.
