Cash surged 17 percent to $47.8 billion in the three months ended Sept. 30, Omaha, Nebraska-based Berkshire said in its quarterly regulatory filing Nov. 2. That’s $115 million less than the record at the end of June 2011.
Buffett, 82, has relied on stock picks and takeovers to build Berkshire over the past four decades into a company valued at more than $200 billion. As the firm increased in size, the billionaire has focused on managing its biggest equity holdings, including stakes in Wells Fargo & Co. and International Business Machines Corp., and finding multibillion-dollar acquisitions.
“He’s elephant hunting,” said Jeff Matthews, author of “Secrets in Plain Sight: Business & Investing Secrets of Warren Buffett” and a Berkshire shareholder. “And there aren’t a lot of elephants around.”
Berkshire’s more recent deals have included a building- insulation maker and food-distributor Meadowbrook Meat Co. as Buffett’s firm completed so-called bolt-on purchases that cost $1.8 billion in the first nine months of the year.
“We do not believe that these acquisitions are material, individually or in the aggregate,” to the company’s financial statements, Berkshire said in the filing.
Last week, Buffett agreed to acquire party-supply retailer Oriental Trading Co. Berkshire will pay about $500 million, according to a person familiar with the deal who declined to be identified because terms were private.
Berkshire’s cash rose after third-quarter net income climbed 72 percent to $3.92 billion as profit advanced at units including railroad Burlington Northern Santa Fe and power provider MidAmerican Energy Holdings Co. The company also had better results in its derivative book. Buffett and his deputies sold about $3.18 billion in stock in the three months, while buying $1.18 billion.
Berkshire doesn’t pay a dividend and won’t buy back shares at the current price, according to the company’s repurchase guidelines. Buffett has said that bonds are among the “most dangerous” assets because of inflation and currency risk and that he prefers to buy stocks and whole companies.
“He’s just looking for the best possible big one, and in the meantime it doesn’t hurt to do these little things,” Buffett biographer Andrew Kilpatrick said in a phone interview.
The billionaire passed on a deal valued at about $22 billion because he couldn’t agree on price, he said in May. Buffett has said he looks for companies with a durable competitive advantage and builds in a margin of safety in his investments to shield the company from losses if a wager doesn’t turn out as he expects.
“He’s not going to pay $20 billion for just $20 billion,” Kilpatrick said. “He’s going to pay $20 billion for $22 billion or $25 billion.”
Berkshire has gained 14 percent this year, beating the 13 percent advance in the Standard & Poor’s 500 Index. Class A shares slipped 0.2 percent to $130,300 at 4 p.m. in New York. Operating earnings of $2,057 a share missed by $6 the average estimate of three analysts surveyed by Bloomberg.
The U.S. presidential election tomorrow and the so-called fiscal cliff of automatic tax increases and spending cuts at the start of next year may create an opportunity for Berkshire if stock prices fall, said David Kass, a professor at the University of Maryland’s Robert H. Smith School of Business. Kass has accompanied students to meet Buffett in Omaha.
The S&P 500 may end the year little changed from its close on Nov. 2, according to the average estimate of Wall Street brokerages surveyed by Bloomberg. The most bearish prediction is for a 17 percent drop.
Goldman Sachs Group Inc.’s chief U.S. equity strategist David Kostin said stocks may end the year lower because lawmakers’ resolution of the fiscal cliff may be “messy.” The pressures from that risk begin this month and continue through January, he said at a conference in San Diego Sept. 10.
“To the extent that it looks like we’ve run into another deadlocked situation, equities could sell off” giving Buffett more favorable conditions for a buyout, said Kass.
Buffett paid $8 billion in the 2008 credit crisis for preferred stakes in Goldman Sachs and General Electric Co., that gave Berkshire a $1.2 billion investment gain last year when they were redeemed. He also spent $5 billion last year for preferred shares and warrants in Bank of America Corp., after the lender’s shares sank as liabilities tied to home loans rose.
Berkshire’s biggest acquisition, the 2010 takeover of BNSF for $26.5 billion, was at a 31 percent premium to the railroad’s closing price before the deal was announced.
“It’s a good asset for Berkshire to own over the next century,” Buffett said in a 2009 interview with Charlie Rose on PBS, less than two weeks after the railroad deal was announced. “You don’t get bargains on things like that.”
Buffett has used hunting references to describe his eagerness for acquisitions, telling shareholders in a letter of February of last year that “Our elephant gun has been reloaded, and my trigger finger is itchy.”
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