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Berkshire Hathaway (NYSE:BRK.B) shares have been a beacon of stability in an otherwise turbulent market. While the S&P 500 has slumped 10% from its all-time high, Berkshire’s stock has surged, hitting record highs. This performance is no accident. It’s the result of a combination of strategic foresight, robust earnings, and a disciplined investment approach. So, here’s why Berkshire Hathaway shares are continuing to attract investors despite trading at all-time highs.
Record cash and strategic positioning
One of the most striking aspects of Berkshire’s recent performance is its record cash reserves. These now stand at an astonishing $334.2bn. This massive war chest has been built up over the past year, as Warren Buffett and his team sold off significant holdings in companies like Apple and Bank of America. While some analysts have questioned the wisdom of holding such a large cash position, it has proven to be a masterstroke in the current market environment.
Buffett’s strategy of maintaining a substantial cash reserve allows Berkshire to capitalise on market downturns by acquiring undervalued assets. And while the market has largely returned to levels seen before Donald Trump’s election, some stocks have slumped. And it’s these corrections and retracements that may be presenting Berkshire with buying opportunities. Interestingly, however, Buffett’s most recent purchases have been in Japan.
The business is outperforming
Berkshire’s recent financial results have also contributed to its stock surge. The company reported a 71% increase in fourth-quarter operating earnings. This was driven by higher interest rates — improving returns on US Treasuries — and a significant improvement in its insurance operations. Insurance investment income rose by 48%. Meanwhile underwriting earnings saw a notable uptick, particularly from subsidiaries like GEICO.
These strong earnings underscore the resilience of Berkshire’s diversified business model, which includes insurance, energy, and transportation sectors. This diversification has helped the company weather market volatility and deliver consistent returns to shareholders. What’s more, the huge cash reserves add to this diversification.
A track record
Despite the massive cash pile, Buffett has reiterated that Berkshire remains heavily invested in equities. And not just any stocks, but particularly in American companies with significant international operations. This long-term focus on stocks aligns with Buffett’s belief in the enduring value of well-run businesses, even in uncertain times.
What’s more, Buffett and Berkshire Hathaway have a pretty good track record. With six decades of outperformance based on an evolving strategy that puts America first, investors likely have a lot of confidence in the conglomerate.
There’s no dip to buy
Buffett tells us to be greedy when others are fearful and vice versa. Ironically, that could mean avoiding surging Berkshire shares. However, investors seem keen to buy Berkshire shares and back Buffett to buy the dip elsewhere on the market.
However, Berkshire Hathaway isn’t a risk-free investment. Risks including leadership succession post-Buffett, limited tech exposure, and sensitivity to interest rate cycles. Its concentrated equity investments, primarily in five companies, amplify exposure to market fluctuations. Additionally, environmental disasters, cyber risks, and potential declines in insurance profits pose challenges.
Nonetheless, it’s a risk millions of investors are willing to take. In fact, I’ve just topped up on my position.
