Why Greg Abel is finally putting Berkshire’s massive Buffett cash pile to work

Berkshire Hathaway has started putting its enormous cash reserve to work under chief executive Greg Abel.

The development offers the clearest sign yet of how capital allocation may evolve after Warren Buffett stepped down as CEO.

The conglomerate bought $23.5 billion of equities in the second quarter while selling $3.7 billion, making it a net buyer for the first time in 14 quarters.

It also repurchased about $4.5 billion of Berkshire shares and bought more in July, helping reduce cash and Treasury holdings to roughly $365 billion.

Berkshire is finally switching from seller to buyer

For years, Berkshire’s problem was not generating cash but finding investments large and cheap enough to matter. Its cash pile swelled as Buffett passed on expensive stocks and acquisitions.

That changed sharply in the June quarter. Berkshire bought nearly $20 billion more stocks than it sold, its largest net outlay since early 2022.

Purchases included about $10 billion more of Alphabet, although Buffett has said the original decision to buy Google’s parent was his.

Operations also strengthened. Berkshire’s operating profit rose 16% to $12.98 billion, supported by BNSF Railway, Berkshire Hathaway Energy and manufacturing, service and retail businesses, while weaker insurance results limited the gain.

CFRA analyst Cathy Seifert told Reuters the results showed Abel was “slowly, gradually and subtly” asserting himself as Berkshire’s new leader.

In his first shareholder letter as CEO, he stressed that Berkshire would remain patient and disciplined.

The difference is that acceptable opportunities appear to be showing up again.

Berkshire itself has become an investment opportunity

The clearest signal may be Berkshire’s willingness to buy its own stock.

The company repurchased about $4.5 billion of shares during the second quarter, up dramatically from $235 million in the first quarter after buybacks resumed in March.

Berkshire spent another $3.3 billion in July, taking purchases since April to nearly $8 billion.

The company's policy permits repurchases only when Abel, after consulting Buffett, judges the shares to be trading below conservatively estimated intrinsic value.

Macrae Sykes, a portfolio manager at Gabelli Funds, told Business Insider the sizeable buyback suggested Abel and Buffett once again saw Berkshire shares as offering “good value for money” while finding another productive outlet for cash.

That makes the repurchases especially important as buying an outside company requires finding a business large enough, attractively priced and suitable for Berkshire.

Buying Berkshire itself removes much of that complexity when management believes the valuation is compelling.

Abel is spending, but the cash mountain remains

The scale problem has hardly disappeared.

Even after the equity purchases and buybacks, Berkshire ended June with around $365 billion of liquidity.

A few billion dollars that could transform another company barely dents a balance sheet of Berkshire’s size.

There is also reason not to overstate the strength of the quarter. As per market data, operating earnings grew closer to 6% after stripping out favourable currency swings, while Geico’s pre-tax underwriting profit fell 45%.

That makes capital allocation the bigger test for management as they must find enough stocks, acquisitions and Berkshire shares worth buying without lowering the valuation standards that allowed Buffett to build the cash pile.