Latest / Stock Picking with Fexingo: Individual Equities, Research, and Building a Concentrated Portfolio / Why Berkshire Is Sitting on Three Hundred Billion in Cash
Transcript
- Lucas: So Berkshire Hathaway is now sitting on over three hundred billion dollars in cash. Luna: That's a staggering number. I saw the latest filing put it around three twelve, if I remember right. Lucas: Three hundred and twelve billion as of the end of June. And Warren Buffett made a pretty pointed comment earlier this week — he said, quote, 'It's tough to find values when everybody is preferring gambling.' That's not just a throwaway line. It's his investment thesis right now. Luna: Right, he's basically saying the market is pricing in a lot of hope and not a lot of margin of safety. The S&P at seventy-five seventy-two as of this morning — that's a cyclically adjusted P/E of what, thirty-five plus? Lucas: Around thirty-six on the CAPE. And that's well above the long-run average of about seventeen. So Buffett's caution is consistent with the valuation data. But what's interesting is that Berkshire hasn't just been sitting still — they've been actively repositioning. Luna: Yeah, they trimmed Apple again. I think they sold about fifteen percent of their stake in the second quarter. Lucas: Correct. Apple is still their largest holding, but they've reduced it significantly from the peak. Meanwhile, they added to Chevron and Occidental Petroleum. Those are energy names that generate strong free cash flow and trade at single-digit PEs. Buffett is rotating from growth into value, but he's still not finding enough to deploy all that cash. Luna: So the cash pile isn't just a signal about Berkshire — it's a signal about the market. When the world's most patient investor can't find bargains, maybe the rest of us should be thinking twice. Lucas: Exactly. And that's the core tension in stock picking right now. On one hand, you have the megacap tech names — Meta was up nearly eight percent in the last five days, NVIDIA up almost five. On the other, you have Buffett saying he's struggling. So who's right? Luna: I mean, Buffett has a long track record of being early, but not wrong. He sat out the late nineties tech bubble and looked foolish for a while. Then the dot-com crash validated his patience. Lucas: That's the frame I come back to. The question is not whether Berkshire's cash is earning anything — it's earning about four and a half percent in T-bills right now, so it's not dead money. The question is whether the opportunity cost of not buying stocks today will look small in five years. Luna: And that depends entirely on where we are in the cycle. If the economy slows and earnings disappoint, that cash becomes dry powder to buy at lower prices. If growth continues, he misses out. But Buffett has always prioritized avoiding permanent loss over maximizing short-term gains. Lucas: Right. And look at what he's actually buying. Chevron trades at about eleven times earnings with a four percent dividend yield. Occidental at about nine times. Those are the kinds of valuations that give him a margin of safety. Compare that to NVIDIA at fifty-four times earnings or Tesla at seventy-eight times. The gap is enormous. Luna: So for listeners who run concentrated portfolios — and that's a lot of our audience — the lesson might be: it's okay to hold cash if you can't find compelling ideas. The pressure to be fully invested is real, but it's also how you make mistakes. Lucas: Absolutely. And one way to think about it is to treat cash as a position. If you have a ten-stock portfolio and you think the market is overvalued, maybe you run at eighty percent invested and twenty percent cash. That's not market timing — it's risk management. Luna: Yeah, and Berkshire is essentially doing that at scale. Their cash position is about twenty-five percent of their market cap. That's a huge bet on patience. Lucas: And the interesting thing is, Buffett has said he'd love to deploy more. He just can't find large enough opportunities that meet his criteria. The market cap of Berkshire is around nine hundred billion — to move the needle, he needs multi-billion dollar deals. And in this environment, those are scarce. Luna: So what does he do? He buys back stock when it's cheap, but Berkshire's own stock has been trading near all-time highs. They bought back very little in the last quarter. Lucas: Right. So the cash keeps growing. And it's not just Berkshire — look at Apple, Microsoft, Alphabet. They're all sitting on massive cash piles. The difference is they're also buying back stock aggressively. Apple bought back over twenty billion in the last quarter alone. Luna: But that's a different kind of capital allocation. Apple's cash is earmarked for buybacks and dividends because they believe their stock is undervalued. Berkshire's cash is a strategic reserve for acquisitions or a market downturn. Lucas: Exactly. And that brings us to the bigger picture. If you're a stock picker, you need to decide which camp you're in. Are you willing to pay up for growth, or are you waiting for value? The market is giving you a clear choice right now. Luna: And the data shows that value has been outperforming growth this summer. Chevron and Exxon are up five and four percent respectively over the last five days. Banks like JPMorgan and Bank of America are up three to four percent. That rotation is real. Lucas: It is. And it's partly driven by the expectation that interest rates stay higher for longer. Kevin Warsh testified to the Senate banking committee yesterday and basically said the economy is strong enough that the Fed doesn't need to cut aggressively. That's good for banks and energy, less good for high-duration tech stocks. Luna: Which is probably why Meta, despite its huge move this week, is still trading at a forward P/E of twenty-five. That's actually reasonable compared to some of its peers. Lucas: Meta is an interesting case because they have the cash flow to support the valuation, and they're buying back stock aggressively. But Berkshire's approach is the opposite — they'd rather hold the cash than overpay for growth. And I think that discipline is what separates great investors from average ones. Luna: So for listeners who want to emulate Buffett, the takeaway is: don't feel compelled to invest just because you have cash. Wait for the fat pitch. Lucas: And that's hard to do when you see stocks going up every day. But the evidence is clear — the best investors are often the most patient. Berkshire's long-term track record speaks for itself. Luna: I think this is a good place to mention something about the show. We keep these episodes free of ads because we want the focus to stay on the ideas, not on selling you something. Lucas: Yeah, that's intentional. And if you find value in that approach, the simplest way to support it is through listener contributions. There's a link at buy me a coffee dot com slash fexingo. No obligation, but it helps us keep doing this. Luna: Exactly. And now back to the market — because I think the real question for stock pickers is whether the rotation into value has legs or if it's just a summer fling. Lucas: That's the million-dollar question. Historically, value outperforms when the economy is growing steadily and interest rates are stable. That's exactly the environment Warsh described yesterday. So I think the rotation could continue through the end of the year. Luna: But it's not uniform. Energy has been strong, but small caps — the Russell 2000 is down half a percent over the last five days. So it's not a broad-based value rally. It's selective. Lucas: Very selective. And that's where stock picking comes in. You can't just buy a value ETF and expect it to work. You have to look at individual companies, their cash flows, their competitive advantages. That's what Buffett does, and it's what we try to help listeners do. Luna: So for next week, I'd love to dig into one of Berkshire's newer positions — maybe Occidental or a smaller name they've added recently. Lucas: I like that. Occidental is a fascinating case because it's basically an energy company with a carbon capture angle. And Berkshire owns over twenty percent of it now. We'll explore that next episode. Luna: Sounds like a plan. For now, the lesson from Berkshire's cash pile is simple: don't confuse activity with progress. Sometimes the best move is to wait. Lucas: Well said. We'll see you next time.