What Does Buffett’s Cash Pile Mean for BRK Stock?

Introduction

In his famous annual letter, Warren Buffett attempted to reassure investors after his Berkshire Hathaway [BRK-B] fund’s Q4 earnings showed its cash holdings increased to record levels in the quarter.

BRK-B is up a healthy 19.46% for the 12 months to February 24’s close. Investors will be watching to see if the notable jumps following Q2 and Q3 2024 earnings will be replicated this time round.

What’s New with Berkshire Hathaway?

Q4 earnings showed cash reserves increasing for the 10^th consecutive quarter, reaching a record $334.2bn at the end of last year. Despite this, Buffett was unequivocal in his assurance that “Berkshire will never prefer ownership of cash-equivalent assets over the ownership of good businesses.”

Investors appeared convinced, with BRK-B jumping 4.11% on the Monday after the earnings report.

Elsewhere in the business, 2024’s full-year operating earnings of $47.4bn represented a 27% increase from 2023’s levels, largely driven by a strong performance in its insurance business. The firm is already managing expectations for 2025’s performance following payouts from the California wildfires in January.

Finally, the hedge fund’s Q4 2024 13F form, filed on December 31, reveals that Apple [AAPL], American Express [AXP] and Bank of America [BAC] remain the largest holdings, at 28%, 17% and 11%, respectively.

Perhaps the most notable move has been a drop in the firm’s Citigroup [C] holdings. In Q3, the bank held 11^thposition in BRK’s 13F, and in Q4 it failed to make the top 20. With more than 40 million shares sold — a 73% reduction — this development is in line with the firm’s wider move away from banks.

How Has BRK Performed Recently?

Despite a rocky macroeconomic picture, particularly in the US, BRK has continued to perform well over both the past 12 months, up 19.46% to February 24, and the more immediate year-to-date, in which it is up 9.96%.

Previous quarterly earnings have seen uplifts, and Q4 earnings seem to have had a similar effect.

Following strong Q3 earnings, BRK rose 6.02% between November 4 and 6, 2024. Similarly, an increase of 4.31% between August 5 and 8 followed the publication of Q2 results.

Given that US politics have a significant bearing on the firm, and events like the wildfires in California impact the insurance operations of GEICO, it could be a challenging year ahead. In the run up to Q1 2025 earnings, scheduled for May 5, investors will no doubt be watching share price movements very closely.

How Does BRK Compare to ARKK?

Those looking to invest in similarly aggressive, diverse funds might be interested to compare BRK’s recent performance with Cathie Wood’s ARK Innovation ETF [ARKK].

Up a healthy 22.04% for the 12 months to February 24’s close, ARKK has outperformed Buffett’s firm in this time frame, despite an initial dip of 17.49% in the first six months of the window. For the year to date, ARKK flags slightly, up 4.07%.

ARKK’s biggest holdings — including Tesla [TSLA], Roku [ROKU] and Coinbase Global [COIN] — represent a more future-focused approach, versus Buffett’s tried-and-tested holdings.

Can BRK Navigate the Changing Landscape?

At 94 years old, Warren Buffett has been a big name in investing for decades. As the comparison with Cathie Wood’s fund suggests, his investment style has changed very little in that time, and he has continued to net healthy gains over both an annual and a longer-term time frame.

Having successfully navigated events such as the dotcom boom, can Buffett’s philosophy continue to grow the stock through the artificial intelligence (AI) revolution and beyond?

The Bull Case for BRK

Between 1965 and 2023, Berkshire Hathaway stock enjoyed a 19.8% compound annual growth rate, handsomely outperforming the S&P 500’s annualized returns of 10.2% in the same period.

While Buffett’s personal role in the firm has long been a compelling case for investment, there is a strong team of top executives ready to continue steering the firm in the right direction.

Revenue has consistently beaten estimates over the past four quarters, and BRK remains a solid long-term investment in the eyes of many Wall Street analysts.

The Bear Case for BRK

That said, it is worth delving deeper into BRK’s historic performance. Despite strong average growth rates over nearly 60 years, recent years have seen the fund fail to reach the astronomical returns enjoyed in the 1980s and 1990s.

2013 is the last time the fund reached 30% returns, and the fund has not been over 50% since 1998.

Investors keen to invest in the future of technology could be concerned by negligible holdings in AI-focused stocks, with a major holding in tech giant Apple doing little to assuage those concerns.

Lastly, while Buffett addressed the firm’s increased cash pile in his recent letter to investors, the fact the fund offloaded $134bn in stocks during 2024 is impossible to ignore.

Conclusion

Strong Q4 earnings have helped Buffett’s Berkshire Hathaway rally, although its increase in cash holdings and a continued reticence to invest in future-facing stocks may present causes for concern amongst investors looking to diversify in that direction.