Warren Buffett, otherwise known as the Oracle of Omaha, was famed for saying many things, including that his secretary pays a higher tax rate than he does (not a higher tax bill, just a higher tax rate).
Let’s take a look at Berkshire’s latest earnings and his comments from his annual shareholder letter.
53% of his companies reported declines in earnings? That’s a big number. An equally interesting number is the fact that they owned Treasury Bills, which have a maturity up to one year. Far different from many of the small banks’ (Silicon Valley Bank) decisions.
Meanwhile, the sales of some of his stocks, combined with all of the operating income from his businesses and interest income from his T-Bills, have left Berkshire with a pile of cash. And by pile, I mean “gigantic, enormous, huge, overwhelming pile.”
Wait, what? $334 billion? Assume a 4.5% interest rate and that’ll get you a cool $15 billion per year in interest…risk free (pre-tax).
All the while he was paying more taxes than any corporation has paid before. How much you ask?
Almost $27 billion! That’s a crazy amount, and roughly 5% of all corporate taxes paid.
Anyway, moving on from this staggering tax bill, let’s consider the implications of how Buffett currently has Berkshire Hathaway positioned. On the one hand Buffett likes stocks more than any other asset, owning roughly $272 billion in equities (e.g. shares of Apple, Bank of America, etc.), down from $354 billion a year ago. This is on top of the value of their operating businesses that they own outright (e.g. BNSF Railway, GEICO, etc.). But as I stated before, they own $334 billion in Treasury Bills, which is the largest in their history. Put another way, right now, Berkshire could be viewed as a 65/35 company, not all that far off from the traditional 60/40 (stocks/bonds) portfolio. Interesting. I am sure this will change, but Buffett seems to see holding cash for what it is – the option to buy something later at a discount from where it is today.
I love this last thing Buffett said in his letter…
To clarify, I don’t love that other people got the short straw, but that he wants the United States to “maintain a stable currency.” It’s an interesting comment when you look at it this way. Here’s his version of a “stable currency”-
Stable, but depreciating. So, let’s make sure we depreciate this dollar in a stable way. Don’t even get me started on that!
If we value that in dollar terms of when he started Berkshire, I think we would get a slightly different picture. It’s also a reason that we say you must own assets that will hold their own relative to inflation.
Lastly, we have been conservatively positioned relative to the market since November 21st and continue to be such. We don’t see a huge reason at this point to change our position, neither does Buffett.
Finally, this was brought to my attention by a client. Be careful out there. Here is an app that is a bit deceptive.
Notice that they lead with the high APY, but then in smaller font say that it’s backed by Real Estate assets. What real estate? What happens if those assets don’t pay or aren’t worth what you book them as? That’s the risk. Be careful out there. I’m not saying this is a scam, but any time money looks “easy,” a caution flag needs to be raised. Don’t get caught up in the high APY quoted. Just saying!
That’s it for this week. If you have any questions, please reach out and we will be happy to have a conversation.