After an amazing track record for its first 50 years in business, can I now say something less than adoring about Berkshire Hathaway?
The company achieved ~20% compound annual growth in total returns from1964 to 2012, handily beating the S&P 500*. Berkshire Hathaway has created incredible wealth for Buffett and the company’s shareholders.
But for all of us who didn’t buy Berkshire Hathaway before 2013, we were better off investing in SPY (the S&P 500 Index ETF).
| Stock | Total return (last 5 years) | Total return (last 10 years | Total return (last 13 years) |
| SPY | 73% | 257% | 349% |
| BRK-B | 63% | 228% | 315% |
Source: Yahoo! Finance
Now, one defense of Berkshire is that it is difficult for very large companies to grow their value as fast as the market, and all but 493 of the S&P 500 are smaller than Berkshire. Fair enough. But, if you look at the 7 US companies that have more revenue than Berkshire, roughly half of them have provided a greater total return to shareholders.
Which companies with more revenue than Berkshire Hathaway have provided better total return?
| Time Period | Companies |
| Last 5 years | Amazon, Alphabet (Google), McKesson |
| Last 10 years | Amazon, Apple, Alphabet (Google), McKesson |
| Last 13 years | Amazon, Apple, Alphabet (Google) |
Source: Yahoo! Finance
Hmmmm…OK, not super impressive…but it is impressive that they have achieved that return with the amount of cash and marketable securities (mostly T-bills) they have, right?
I would agree, but the better question is why are they doing it that way?
Let’s take a look at Berkshire and compare it to the three technology companies that outperformed BRK-B at times over the last 13 years. These companies are all big holders of cash, which you could argue is more appropriate for large technology companies, given technology risk and the high valuations of most appropriate acquisition targets.
How much cash is enough?
As you can see below, Berkshire’s cash holdings, as a percentage of its market capitalization (market value), is 12x, 15x and 24x, the percentage held by Amazon, Alphabet (Google) and Apple, respectively.
| Company | Cash / Cash Equivalents / Marketable Securities* | Approx. Market Cap | Cash as % of Market Cap |
| Berkshire Hathaway | ~$390 billion | ~$1.02 trillion | ~39% |
| Amazing | ~$90.1 billion | ~$2.88 trillion | ~3.1% |
| Alphabet | ~$126.8 billion | ~$4.86 trillion | ~2.6% |
| Apple | ~$68.5 billion | ~$4.38 trillion | ~1.6% |
*Most recent SEC filings or 5/14/26 (Yahoo! Finance)
It would be reasonable to ask, “Why should I pay for my equity investment to hold cash?”
You can hold the cash yourself (or invest it), but Berkshire is implicitly telling you that they need this cash and that they will generate superior returns with that cash. But will they? Or, more obviously, have they?
I would argue that not only do they not need anywhere close to the cash they hold, but they haven’t generated superior returns with the extra cash they have deployed.
To test my argument that $390B is far more than the company could conceivably need, let’s look at how Berkshire’s strategy suggests they will deploy their cash. First, the reason they hold cash is to be able to buy companies/securities when the prices are depressed and money is hard to find. So, it makes sense to look back only 18 years, to 2008 and the Great Recession, when the country was teetering on the edge of depression and, given that credit was at the heart of the crises, the capital markets were tight for years after the initial crises.
It’s hard to imagine a more appropriate moment to evaluate Berkshire’s strategy than 2008 through 2010. So, what happened?
According to SEC filings, Berkshire made ~$90B of investments from 2008-2010. It started 2008 with $44.3B of cash and equivalents and ended 2010 with $38.6B, which means they only needed $5.7B more than their operating cashflow during this “target-rich” period.
A reasonable estimate of capital deployment during the period is:
- ~$40–50B into acquisitions/M&A,
- ~$30–40B into investments and financings
| Investment/Acquisition | Approximate Capital Deployed | Timing |
| Burlington Northern Santa Fe acquisition | ~$26.5B | 2009-2010 |
| Lubrizol acquisition | ~$9.0B – $9.7B | Announced March 2011 |
| Marmon Holdings purchases | ~$6B | 2008-2010 |
| Goldman Sachs preferred investment | $5B | 2008 |
| General Electric preferred investment | $3B | 2008 |
| Dow Chemical preferred investment | $3B | 2009 |
| Swiss Re investment | ~$2.6B | 2009 |
| Mars/Wrigley financing | $6.5B | 2008 |
| Public equity purchases (ConocoPhillips, Wells Fargo, IBM, and others) | Tens of Billions | 2008-2010 |
Source: Berkshire Hathaway SEC filings
So, if these investments were made in 2008-2010, you would expect these investments to trigger superior subsequent returns to justify the holding of cash, but the returns over 5-, 10-, and 13- year periods, as we have already discussed, do not reflect superior returns.
Size makes market-beating returns a challenge
Berkshire’s immense size makes it difficult for its collection of core operating businesses to grow faster than and return more than the market. Furthermore, its large cash balance also requires investments in private or public companies to be massive and successful to move the valuation needle.
In addition to Berkshire’s $390B of cash/treasury bonds, it has a $288B investment portfolio*, and most of this portfolio is invested in a concentrated group of large US public companies. If you are “buying the market”, it is hard to “beat the market”.
Source: Q4 2026 SEC filing
Returning capital back to shareholders – why not?
So if you have a lot of cash and securities and they are not helping you generate superior returns, it would be logical to return the cash to investors in some form – either through a dividend (which would be taxable) or the repurchase of BRK-B shares (which would reduce the outstanding shares and make each share more valuable). This method does not create a taxable event, which feels more like how the company thinks as investors.
But Berkshire has never paid a dividend and has given no indication that they are considering it (despite investors bringing up the topic for years). Stock repurchases have been de minimis over the past 3 years, and management gave no indication at the annual meeting that they would be reinstituted in any material way.
The implicit message from management is that investors are better off having BRK-B hold their money in reserve than having it returned. More specifically, the implication is that their investors are better off holding treasuries and S&P 500 stocks than receiving cash that they can deploy to meet their personal goals. While that would be fine if the company had a recent track record for turning that cash into exceptional returns, as Tom Petty once said, “the waiting is the hardest part”. And while many investors still worship at the altar of Buffett and Berkshire, I (and others) don’t understand this strategy.
Of course, a company should hold cash on its balance sheet for future projected needs with a margin of safety – even a large margin of safety. But the utility of cash has a limit, and diminishing returns (pun intended) will follow. The irony here is that Warren Buffett and BRK-B, the world’s most famous capital allocators, really need to explain to investors why they need to hold this much cash. What is the scenario that would make you look smart for holding $390B of cash and T-bills?
How well is Berkshire positioned for the future?
After an illustrious career, Warren Buffet has left the CEO seat, replaced by Greg Abel, a long-time lieutenant known for his operating prowess. Greg is well respected, but is he the right person for the situation?
Berkshire was home to two of the greatest investors of all time, Warren Buffett and Charlie Munger, and they built a legendary company with their investing prowess and hand’s off, lean-and-mean corporate management philosophy.
The company now has $670B of its $1T valuation (67%) in cash and investments, and I would argue that this is where a CEO would have the most leverage to add value. But this is not Greg Abel’s strong suit–Munger has passed away and Buffet is retiring, and not only is that famous duo no more, but other investment talent that supported them has also left the company. Many observers were hoping that the company would name a Chief Investment Officer at this year’s annual meeting to support Abel, but it did not come.
Summary
It seems unbelievable, but you could easily argue that BRK-B is not very “investor-friendly” right now… if you are willing to be politically incorrect. Or is the world not ready to look at BRK-B with a discerning eye? Perhaps the changing of the management guard at Berkshire, and 13 years of average performance will empower investors to speak up and ask for changes.
I think of BRK-B as a defensive stock now, when it has been known historically as a growth stock. My issue with the stock is, ironically, how they have allocated capital since then. The company has the assets to reward investors beyond the current return, but they show no signs of doing so.
It doesn’t take too much imagination to predict an activist investor might target BRK-B and press for changes to capital structure and more investor-friendly policies. If that happens, shareholders could benefit significantly. Someone in power should at least demand a more rigorous analysis/explanation of the current capital structure.
*Berkshire Hathaway Letters to Shareholders, 1965-2014
