Berkshire's cash pile isn't huge in worst-case scenario, Buffett says
May 02, 2020 7:10 PM ETBerkshire Hathaway Inc. (BRK.B)54 Comments
Berkshire Hathaway's (NYSE:BRK.B) (NYSE:BRK.A) cash position "isn't all that huge when you think about worst-case possibilities," Warren Buffett said during the annual meeting's question and answer section.
"We don't prepare ourselves for a single problem, we prepare ourselves for problems that sometimes create their own momentum."
The conglomerate had $137B of cash and Treasury bills on its balance sheet as of March 31, 2020.
Asked why he hasn't invested in any companies during the pandemic crisis like the company did during the financial crisis, Buffett said "we haven't seen anything attractive."
Furthermore, funding was a lot easier to get this time around.
"The Federal Reserve did the right thing and very promptly," Buffett said. "Companies got the chance to finance in huge ways in the last five weeks."
"Berkshire actually raised more money" recently, although it didn't need it, he added.
Update at 7:12 PM: Regarding how Berkshire's operating companies are handling the pandemic environment, "Very few of our businesses have required funds," said Vice Chairman Greg Abel, who heads all operating businesses except for insurance.
Berkshire has advanced funds to the few of its businesses that did need them, he said.
7:22 PM: Some "very small" businesses that Berkshire owns may close as a result of the coronavirus-fueled downturn, Buffett said, declining to specify what kind of businesses might close.
7:28 PM: Two of three of Precision Castparts divisions are being hurt by the coronavirus lockdowns, Abel said. "The defense part remains very sound and strong."
Meanwhile, the Precision Castparts business dealing with large body aircraft continues to adjust and keep in close communication with Boeing, he said.
7:32 PM: As for its Geico insurance unit, "the delay in payments has obviously increased" due to the COVID-19 pandemic, Buffett said. "That will be a significant cost to us."
For the insurance operations in general, "the amount of litigation is going to be huge. In the auto insurance field, which is our number one field, that's more definable," Buffett said.
The company doesn't have a big presence in commercial multiple peril insurance that might involve business interruption coverage. "We'll have claims, litigation that won't be as much as for other companies," he said.
7:44 PM: Berkshire operating companies haven't participated in any of the federal rescue programs, Abel said.
"When it comes to PPP loans, we're not aware of any of our businesses applying for them," he said.
7:55 PM: Arguing against the idea that the age of passive investing through index funds is over, Buffett said, "I haven't changed my will, which directs my widow to have 90%" of assets in index funds.
8:16 PM: In relation to oil prices and its investment in Occidental (NYSE:OXY), "When you buy oil, you're betting on oil prices and with oil prices there's risk," Buffett said. "If this [oil] price stays where it is, there will be a lot of bad debts and loans."
"It will affect the banking industry to some degree."
8:26 PM: This current downturn may be testing the ability for the world to continue to operate with negative interest rates, he said.
8:34 PM: Buffett sees no chance of the U.S. defaulting on its bonds. "If you print bonds in your own currency, things can happen to your currency, but you don't default."
9:10 PM: "The market system is marvelous in may respects but it need government... it's creative destruction" and for those who are destroyed, "it can be very brutal," Buffett said.
While he wouldn't come up with a new system, "I certainly don't want unfettered capitalism."
9:14 PM: Meeting ends.
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