How to use record cash reserves? Buffett: Need to wait for the right opportunity to take action, possibly within five years

Berkshire's cash reserves reached a record $347.7 billion in the first quarter of this year. Buffett stated that this scale far exceeds his ideal level, but the company must wait for the right opportunity to deploy this capital. He also revealed that Berkshire was once very close to using $10 billion from its record cash reserves last quarter, but ultimately did not proceed. Abel, who will succeed as CEO at the end of the year, stated that Berkshire will adhere to its existing values to guide future investment behavior.

Successor: Will Maintain Existing Investment Values

When asked about his views on capital allocation, particularly regarding investments in new businesses, Abel stated that Berkshire has a clear set of values that lay a solid foundation for the company's future development, including maintaining its existing reputation.

He responded:

“We as a management team have a set of values—these values were established by Warren (Buffett), Charlie (Munger), and everyone associated with Berkshire—they are outstanding values that lay a good foundation for Berkshire's future. Several of these values are absolutely critical.”

Abel pointed out that the primary point is to continue the legacy that Berkshire has already established.

“First, we will maintain the reputation of Berkshire and its subsidiaries. I believe this is reflected not only in investment decisions but also in how we operate our various businesses. This will always be a priority, and we will ensure it remains at the forefront of our thinking.”

He stated that other important values he will uphold include maintaining the robustness of Berkshire's financial statements. Abel said the company's current "huge" cash reserves are a "tremendous" and "strategic asset," allowing him to flexibly allocate these funds in the future, which means Berkshire does not need to rely on banks or other external institutions for success.

He also emphasized that correctly understanding and managing risks is equally important, and there should be "a group of excellent operating companies that can generate substantial cash flow."

“This is actually Berkshire's investment philosophy, and it is the capital allocation method that Warren and his team have followed for the past 60 years, and this method will not change in the future. We will continue to adopt this approach.”

Buffett: The Right Opportunity Will Eventually Be Found, Possibly Within Five Years

When discussing Berkshire's massive cash reserves, Buffett jokingly responded to a public notion: some believe he is deliberately waiting until after the leadership transition to allow successor Greg Abel to make large-scale investments.

Buffett quipped:

“I am not that noble; I won't deliberately hold back now just to make Greg look more accomplished later.”

Buffett stated that Berkshire will eventually find the right opportunity to deploy its record cash reserves, possibly within the next five years.

“The likelihood of this happening tomorrow is low, but the likelihood of it happening within five years is quite high.”

“One issue with investment business is that opportunities never come in an orderly fashion.” Buffett continued to state that the "probability of finding a good investment target increases over time," "it's a bit like death." He then made a light-hearted joke, mentioning his long-time business partner, Charlie Munger, who passed away in 2023 at the age of 99, eliciting laughter from the audience.

Once Prepared to Use $10 Billion for Investment, But Did Not Proceed

Buffett revealed that Berkshire was once very close to deploying $10 billion from the company's record cash reserves, but ultimately did not proceed.

"We actually almost spent $10 billion not long ago," he said, "but if the right opportunity arises, we could also spend $100 billion. What I mean is, as long as there are investment targets that we can understand, find reasonable, and valuable, such decisions are not difficult to make."

As investors speculated on how Berkshire would position itself next, Buffett made the above comments. As of the end of the first quarter of this year, Berkshire's cash reserves had exceeded $330 billion.

The U.S. Needs to "Concentrate Efforts to Accomplish Major Tasks," Companies Should Align Their Interests with Those of the Nation and the People

Buffett stated that the U.S. is indeed facing some significant transformation needs. The country's power grid and highway system have fallen behind the current pace of population and economic growth.

To drive these changes, the government must take stronger measures. Our country has 50 states, each with different ways of thinking. Just like after World War II, we mobilized the entire manufacturing sector to support the war in a very short time, achieving remarkable efficiency. However, achieving the same efficiency in peacetime is not easy.

Investments depend on the context; we have knowledge and capital, but we also need to make strategic shifts. How to leverage Berkshire's role requires solutions that are meaningful both to the nation and to the people and companies.

We do have capital and sufficient knowledge, which enables us to participate. But merely having the desire to cooperate is not enough; we also need the ability to "concentrate efforts to accomplish major tasks."

One thing is clear: we need to be prepared with ample cash reserves to intervene at critical moments.

Buffett pointed out that, for example, the U.S. highway system was completed with the push of the federal government. It cannot be accomplished by just one company. Future large projects will also require close cooperation between the government and the private sector.

Abel stated that, from the perspective of the energy industry, there are indeed many areas where Berkshire can advance. Currently, electricity demand is growing rapidly, and to meet long-term energy needs, necessary capital investments must be made.

We have strong capabilities in this area and are actively addressing related risks.

Only by resolving these risks can we deploy the capabilities to meet future demands. And we must start preparing now