Berkshire Hathaway 2018 Annual Meeting Audience Question # 45

Are most of Berkshire’s consolidated cash plus fixed income needed to support the insurance operations?

Warren Buffett:

OK. Station 4.

Audience Member:

My name is Christian Max. I’m a proud shareholder from Cologne, Germany. It is my pleasure to be here.

My question relates to the Berkshire insurance operations. When I look at the quarterly billing sheets of the last two decades, I noticed a pattern that I kindly ask you to discuss.

The sum of cash plus fixed income always hovers around 100 percent of the amount of insurance float. Therefore, my question is, is it fair to say that from the 128 billion of consolidated cash plus fixed income as of March, 116 billion are actually needed to support the insurance operations?

Warren Buffett:

No, I appreciate…

Charlie Munger:

The answer is no. Yes.

Warren Buffett:

The answer is no. But he deserves an explanation of how this… maybe I haven’t looked at it the way he’s looked at it.

We would much rather have a number closer to 20 than to have 116. And we do not correlate or, in effect, measure the float and then decide how much to put or leave in cash, in fixed income.

The fact…our float keeps growing. And lately our… which is by design and has been terrific for us… and our cash and cash equivalents have has grown because the competition for acquisitions has become much stronger as… both as money has piled up with the buyers of businesses and because debt has been so cheap and a variety of factors.

But I don’t think those are necessarily permanent. In fact, it would be reasonably true they aren’t permanent. It’s just a question of when they change.

We are not tying, as Charlie said, we’re not tying the cash and cash equivalents at all to float.

The float is (the sound in this part of the video is inaudible).

The float went up $2 billion in the first quarter. And there is no way that that that float can shrink a lot in any short period. It just structurally has been set up in such a way that it will not
… it cannot shrink. And actually, I think it’ll grow a little bit for a while.

I mean, I’ve always been amazed by how much it has grown. We’ve got so much more float than any property-causality company in the world. And it’s pretty amazing that it all came from that little building that Jack Ringwalt built and picked the location because it was near the tennis courts.

OK, Carol.

Oh, and Charlie.

Charlie Munger:

There are encouraging recent developments. Some of the cash has gone out recently for securities we vastly prefer over the cash. And we have a lot of cash that could be… remaining… that could be deployed in securities we might like a lot better than Treasury notes. So stay tuned.

Warren Buffett:

Yeah, to make it very simple, in the first quarter we earned five and… from operations we earned a little over $5 billion. Now, we only spent about our depreciation. Normally we would spend somewhat more than that. But that’s 5-and-a-fraction billion. Two billion came, in net, from float. So that’s $7 billion that… basically in the first quarter… that would have been added to our cash if we hadn’t done something with it. And instead our cash and equivalents went down, because we, net, invested more in equities by some margin than the seven that came in.

But we do have this position where, even absent a change in float, about 400 million comes into Berkshire every week, which is very comfortable.

And we will… we want to get it so that more than 400 million is going out into productive assets.

And we succeeded in doing that in the first quarter. And, net, net we improved our position in the first quarter.

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