My Geico™ (US car insurance) premium went from [annual figures, $1000ddct 10x minimums, no accidents, 20 years licensed] $550 pre-pandemic to $800, as of latest summer renewal.

The introductory letter from Geico's division (of Berkshire Hathaway) tried to soften the blow of rates jumping 45% in just over three years... but I am about to drop down to liability only, and sell a vehicle to cover next few incurrence$.

You should shop around too. I switched from Geico to Progressive and then to Connect (the one Costco members get). There's also a few you can only get from an agent which are way more picky about who they accept (I was rejected for switching brands too frequently).

To add onto what others said, insurance companies love loyalty. Loyal customers get charged more. I've found that shopping around about every 3 years is a good idea without too much trouble.

I found it hilarious that Progressive was giving me a loyalty discount that was far less than the rates increased.

Someone, somewhere thinks this is not a super fucked up thing that is a beyond inefficient use of capital.

As opposed to creating fake zombie companies like MoviePass or Jet.com or WeWork?

Railroad investment seems like a far more long-term driver of everyday everyman quality of life than pop up companies that try to take our attention and suck down a $billion while failing to do so.

Why would it be opposed to that?

Generally speaking, you can only spend your money on one thing.

VCs, and the Silicon Valley style culture in general, is a different investing culture than what Berkshire Hathaway is doing here. The underlying current of this discussion is which investing culture is better.

There's a lot of benefits to patiently waiting for an opportunity, rather than spending money as soon as it comes up. SV is surprisingly short-term in its thinking and culture. That's the lesson IMO for the past decade or two, SV is always about keeping up with your neighbors as opposed to thinking about the long term stuff that matters.

In the SV mindset, idle money is awful, you should have spent it on the latest-greatest recent whatever. 5 years ago that was maybe VR, 10 years ago maybe Internet of Things. Just 2 years ago it was cryptocurrency.

Guess what? If you spend your money on dumb things, you don't have money left over when the important revolutions happen. Patiently holding money is slower, but still valid form of investing.

Can you really not think of any worthwhile uses of money other than investing in MoviePass or sitting in a cash pile and "waiting for an opportunity"? I can think of quite a few.

$160B is really small for Berkshire Hathaway.

You're looking at a literally $Trillion++ company. This $100B is literally pocketchange for a rainy day for them.

They've got the vast majority of their assets invested. Saving some money for later is more than just "patience", it also involves thinking about the overall picture of the company in question.

------------

In any case, "Cash" earns 5.25 to 5.5% right now (Federal Funds Rate), meaning all companies with a PE Ratio worse than 19 is a worse investment than cash.

And there's a _LOT_ of companies that have less than a PE Ratio of 19. EDIT: I'm not saying that they're always going to be a worse buy. But a $1 Billion company needs to make 0.0525 Billion/year to be comparable against cash right now, or at least make an argument why this next year of investment is worth more than the 52.5 million that could be easily obtained from a (state-tax free) 1Y Treasury.

Even if Berkshire Hathaway has a market capitalization over one trillion, which I don't believe it does, $160 billion is 16% of one trillion, so it's not exactly "pocketchange for a rainy day"

$1 T+ in assets and $0.45T in Liabilities.

When you have $450 B. in liabilities, $160B in cash suddenly doesn't look so big.

Still better than sitting still. It's a twisted way to do some wealth redistribution

They can both be symptoms of a suboptimal system configuration.

I guess I just feel like idle capital is the devil's plaything. While it could be available for R&D, isn't it more likely to go towards lobbying and bending or breaking the law while maintaining a war chest to discourage prosecution/accountabillity?

That “idle capital” is pretty central to the Ben Graham way of doing things. You keep it around waiting for a great investment. Weird things happen like when silver crashed in price for a couple of days in 2020.

Nobody's arguing against the capitalist perspective in the sense that I don't question their methods to access and grow more/their existing capital.

I'm saying I believe it is bad for pro-social ends and society and that we should be striking a better balance in ensuring we keep the money moving in a trickle up fashion if at all

Or bubble up. Whatever the medium that is implied by this example should be viscous and sticky as shit tho.

Saying nothing of corporate buybacks of company stock

Only if you ignore opportunity cost.

Cash waiting to be deployed when you know there are better opportunities in the future has far more value than just distributing it as dividends, or worse, make bad investments and miss that better opportunities.

But I feel like you're low-key saying we should never be moving money a single inch cuz the unicorn opportunity fairy might precipitate. Why do we even make them pay taxes, what if they had that tax money for their M&A department? Where does the logic end? Does't the money ever get bedsores from all the luxuriating you're advocating for here?

Edit: also who's saying this wouldn't be applied symmetrically across the market to the extent that it fundamentally moots the issue of any one specific player not being ready and liquid enough to pounce on the opportunity. If everyone rises or falls in turn, the abillity to engage in opportunities wouldn't appear to be fundamentally altered since the aggregate abillity to pay would be conserved in some sense, if only proportionally so)

1) The market will self correct. Not everyone has the long term vision or efficient capital allocation like Buffett. If this encourages more Buffetts then it's a great outcome for the society.

2) Corporations absolutely should pay 0% taxes. Why do we tax entities that provide employment, innovate and provide goods and services? It's so backwards. The amount of time, money and resources spent by corporations avoiding taxes can be used for other productive purposes.

All taxes should be captured at an individual level.

Corporations should only be taxed for usage of non-renewable, public goods so that they are incentivized to optimize for that

That comment I made about the money getting bedsores, what would you classify that as? Like I get its exaggerating or something but I can't quite put my finger on what its doing? Seems like a humorus melding of literal/figurative or something

"Inefficient"?

Depends on what you're optimizing for. If you're optimizing shareholder return, lets ask: do you think Berkshire Hathaway has delivered good shareholder returns for its investors? It has like 50 years of history now (?) so you can check whether or not it's efficient.

I thinkk I might be unconsciously approaching this from the vantage point of society and allocating resources where they are most needed, not where they singularly gurantee the owner outsized returns that obviously are not available to everyone

And where do you think Society could better allocate these resources to? Society is largely in the same position as Berkshire Hathaway, lacking positive ROI opportunities to invest in.

Is that right? We don't have housing issues, everybody has a doctor, everyone can not only read but critically reason and easily access education on a far more casual and less impactful way than as stands, nobody's using foodbanks, everybody is fully empowered to understand and be able to participate in voting, half your country isn't stuck in a temporal coal mine that goes nowhere but death and spreading its misery, I think there's many "unexplored" avenues that beat the shit out of "no, lets maintain the status quo. No problems there"

I was coming at it from the angle of making positive long term investments (E.g. Growing the pie), opposed to simply shifting money and who gets services.

Most of the reasons why there is low housing, Healthcare, or food isn't due to lack of capital investment.

If you ask something like why isn't Healthcare cheap and abundant, it isn't because nobody can make money and isn't due to lack of investment.

If you give everyone, $1000 to go to the doctor, guess what, doctors prices will just go up $1000.

The only thing that really makes a difference is expanding supply.

Can I ask you to evaluate the validity of that which I mentioned here? I don't see how all of this isn't elementary in the obviousness of its palpabillity and therefore, it agreeableness in some sense...(?)

Like students who can get into medical school should have that covered if they agree to render their services for a time.

Its absolutely asinine that everything is so high-stakes where you may very well end-up with 10s-100s of thousands of dollars with no material benefit and we also expect people to pull the full weight of preparing them to hopefully one day help that same public. Like the whole current configuration needs to get fucked and get someone to radically restructure so irs not so stupid and debillitating.

They aren't literally sitting on a pile of cash. This is government bonds. They have lent money to the government who is putting the money to work.

Ok that's very reasonable in abstract, but how do you define what "most needed" means?

That's part of the challenge of course, but I don't think there's any shortage of places to start. How about making sure every child has meals for school? How about making sure there are only nominal charges to get a post-secondary education like Germany, how about making sure we're drowning in units to rent as opposed to our current chronic starvation and wild-overvaluing of what having an apartment (a proxy for true freedom and individuality) means so everyone who shouldn't live together doesn't have to and indeed has an option short of murder to make that change.

Tell me when to stop hehe

The government has no shortage of capital. It taxes 40 cents of every dollar in the US GDP, and then spends more in deficit.

It does not have a revenue problem, it suffers from systemic inefficiency and misallocation problem. Most of the challenges are caused by self inflicted process, which cant be solved by throwing more money at( e.g. housing). The cost to feed every child is trivial, but not a priority. $5/day for the poorest 25% of schoolchildren nationally would be ~2 billion per year. California alone had a record budget surplus last year of 100 billion, and the US Federal gov is approaching that just for the war in Ukraine. The fed gifts 4 billion/year on Israel, and just passed a 15 billion dollar package.

> profits made from the myriad of wholly owned businesses such as insurance, railroads and utilities

Genuinely curious where you would rather that capital be allocated?

I'm not GP but, in theory, if a corporation can't find any opportunities for use of capital greater than holding it in safe/cash-like instruments and sees no possibility of those opportunities emerging in the short-medium term, it should be distributed to shareholders, who may well have use for it (even if those shareholders are just intending to put it into cash-like instruments themselves).

The counter arguments that I've seen (there may well be others) are either that it does see those opportunities, but not at this precise moment in time, so is keeping the cash for later. At the level of $156b, this seems a bit unlikely but hey maybe they have some great ideas in the pipeline.

The alternative is that they don't but aren't distributing it to shareholders, because of the tax implications of that distribution (and in general many corporations seem to favour buybacks rather than dividends for tax reasons), and they have some hope that those tax implications will change in the future (or their share price will fall, allowing for better buybacks), allowing them to then distribute the money in a way that benefits the shareholders more.

Don't forget, reinsurance is a GIANT part of Berkshire Hathaway's business. If the right major disaster hits, they need a lot of liquid assets to pay it out.

As https://www.reuters.com/article/us-berkshire-buffett-insuran... says, Buffett gives a 2%/year probability to a $400 billion mega-catastrophe that is likely to wipe out a good chunk of the insurance industry. If that happens, Berkshire Hathaway will be able to pay its share of the claims.

Add that to your thinking. Does maintaining a $150 billion reserve sound so crazy now?

I'd be extremely surprised if the parent company (berkshire hathaway) had structured their companies in a way that left them liable to re-insurance risk :) They may own re-insurance companies, but that doesn't make them liable for losses in those companies.

My understanding of berkshire's business model was that they're heavily diversified, so that they're not as vulnerable to catastrophic loss from a single company/industry.

Yes, but the float in those insurance companies is invested by Berkshire Hathaway. So when people report on BH, they often quote the float as a pile of cash that Buffett is sitting on.

I tried to verify this by looking at the financial report that it is based on. Which may be found at https://www.berkshirehathaway.com/qtrly/3rdqtr23.pdf. Unfortunately the $157 billion figure quoted in the title does not appear anywhere in the report. But page 37 quotes the float as being approximately $167 billion at September 30, 2023. So I suspect that they are quoting the float, and have a typo. Though they might be doing a calculation off of some other numbers.

My claim about how they think about it can be verified on page 32.

"Our management views our insurance business as possessing two distinct activities – underwriting and investing. Underwriting decisions are the responsibility of the unit managers, while investing decisions are the responsibility of Berkshire’s Chairman and CEO, Warren E. Buffett, and Berkshire’s corporate investment managers. Accordingly, we evaluate the economic performance of underwriting operations without any allocation of investment income or investment gains and losses. We consider investment income as an integral component of our aggregate insurance operating results. However, we consider investment gains and losses, whether realized or unrealized, as non-operating. We believe that such gains and losses are not meaningful in understanding the quarterly or annual operating results of our insurance businesses."

The cash they show on balance sheet is rolled up from all their subsidiaries. It's not just the holdco cash. Of course they are liable. Who would buy reinsurance from them if they didn't have the cash required to cover a giant claim?

As an employee I'd much prefer my company to hold onto a rainy day // R&D fund than play stock market games.

> if a corporation can't find any opportunities for use of capital..., it should be distributed to shareholders

A ways down the article says:

"The firm spent $1.1 billion to repurchase shares, bringing the nine-month total to approximately $7 billion."

So they are returning some of that to shareholders.

Indeed but only at the rate of ~10% of profits ($10.761b for the quarter)

That seems reasonable to me. But I guess therein lies the rub. I get impression that many BH shareholders feel Warren and Charlie will be better at deploying that capital than they will.

oh I'm sure they're the best, they wouldn't have been so successful for as long if they weren't, but it does leave a slight concern (to me) if the absolute best people at running a company think there's no way to generate better returns than bonds at 5% it doesn't paint a great picture for likely growth in the near future...

It should be redistributed back to shareholders and then they should pay whatever tax is necessary to eliminate the imbalance in how labour/earned income is taxed more harshly than capital gains or whatever such a redistribution would legally contitute

I dont think any of it is that complicated. It is just that bonds pay so much more than any short other short term opportunities. When there are better opportunities elsewhere, that will change.

Force null all profits and lock down and crash the derivatives market

I'm guessing they would rather it be allocated to anything at all, rather than sitting in a "cash pile".

I mean, it's not like there is a literal $150B pile of cash sitting in a vault anywhere. In practice "sitting in cash" means holding short-term Treasury bills / bonds, i.e. effectively loaning that money to the government to pay for public expenses.

Would you rather have $10 or 10% of the rights to $100 in a safe?

BH could always buy Twitter.

I thought the goal was to efficiently allocate the money, not waste it as fast as possible?

Buffett and Munger are among the most efficient capital allocators in history. Part of their success is patience - not feeling the need to put all their capital to work all the time and then miss out on opportunities when they arise.

Regardless of whether the wealthy people in your country are taxed a small bit or taxed a lot, you should want them to be efficient allocators of capital. Would you rather it be the case that every investor in your economy sank all their money into umpteen duplicates of pets.com?

I’m not sure what you are suggesting. That it is inefficient to have the cash on the books to allocate as they see fit (patience which has turned out to be efficient given their track record), or that because it’s there the government should take it to deal with climate change and famine?

Are you arguing it is inefficient or you don’t like the way capitalist democracies are structured? I can’t argue the latter as I agree with you, but the former is pretty objectively (over any period of time greater than a half decade) incorrect given their track record.

This is a more a latter-argument clash of ideals I guess. I was never arguing I know how to invest better than Buffett/Munger etc. I'm not even specifically picking on them, there's many companies with stacks in the back that slowly slip away from the society they originated from till its all in Ireland or Bahamas or wherever the current tax shelter/capital flight hotspot du jour resides.

It's probably 100b excess in a 750b company. It's earning 4 or 5% and gives a lot of option value to one of the worlds greatest investors should things go south. Given the current climate of wars, high interest rates, government spending... there is a decent chance he'll have a great chance to put that money to work at high rates of return here in the next few years.

And if the concern is about society... It's 150b that berkshire has lent to the government, who is spending the money on things for society. If someone doesn't like the way the government are spending it, that's another issue.

He's waiting for a crash to buy some bargains. At current prices, I don't blame him.

I wish someone would do like a documentary/simulation of how deals are sought after a literal crash, like meteorite or some social system collapsing in a palpable way and all the out-of-work financiers who's mode of action has become irrlevant and they are no better off than travelling baseball card salesmen, just a little less deadly and less able to fruitfully weaponize their greed.

Yeah, they are screwed just like everyone else. Don't imagine for a second they aren't aware of it.

'Cash' is an easy term for 'safe liquid investments' aka BH is buying US treasury bonds because rates are high. So basically the Fed goaded BH into financing the federal deficit.

Efficient? Well, that's for you to decide.

ME! I think that, you found me

> The economic effects from [covid, inflation, war, and supply chain issues] related over longer terms cannot be reasonably estimated at this time.

Interesting times we live in.

For reference, Disney market cap is 156B. Also, apple has a similar cash pile.

When even sage of Omaha can’t find opportunities to invest it definitely hints towards a stock market crash or correction soon. For those of you that might need to cash out some money in the coming years (maybe when you get made redundant) I would definitely recommend to rebalance at least some of the portfolio into bonds. Stock market will likely outperform in a long enough time period but it might be too long for some.

An important point to be made here is that Berkshire's cash pile is not reported in real terms.

Rates are pretty high, and cash sitting in US Treasuries are earning 5%. When you have $150 billion, that's $7 billion/year growth just in interest.

But it's not actually $7 billion in real growth, it's mostly just inflated.

Berkshire had $149 billion 2021. They have $157 billion today. That's actually a decrease in real terms.

This is a bad guideline. Buffett never invested in MSFT, GOOG, AMZN, NVDA, META/FB, NFLX, TSLA and only very lately bought AAPL. Any early investor of these stocks would have beaten BRK

Typically, growth stocks look expensive. Traditional 'Atom' companies had a limit to how much they can grow, while 'Bit' companies (I'm including AMZN, NVDA, AAPL here) seem to keep piercing the MAX frontier function.

Buffett of course doesn't invest in companies that he has little expertise in.

Rule of Investing : Build a model of the world and constantly update it with new information. Guidelines, Indicators, Correlations are meant to be broken.

Build an internal LLM that include long-term successful investors from Buffett to Shkreli and people with integrity like Aswath

On other hand take something like Cisco, which if you invested in 2000 would look like really really bad bed... It might be that today's Nvidia is Cisco from back then...

The fundamental misalignment between the economy and commentary on it seems to be continuing. The top comment on an HN article about a 40% jump in profit for a business with $130,000,000,000 in the banks is directing people to prepare for a stock market crash.

Nearly every blue chip company just posted historical record Q3 earnings, yet the market is in full on correction territory. We ceased to be coupled with it a long time ago.

Correction?

I'm like maybe I missed something? Let's look at SPY, haven't done that in a month

- 3% off ATH - up 25% YoY - up 2% MoM - up 5% WoW

Shrug

>3% off ATH - up 25% YoY - up 2% MoM - up 5% WoW

Take a look at the 6 month. We're at the top of a 5 day dead-cat from the last dip right now. I'd put SPY at 420 for 11/10 if I were a gambling man.

Not saying we're headed for a "crash", but there is simply no case to be made for equities in the next 18 months if you are concerned with capital preservation.

The market price for goods and stocks depend on their alternatives.

Can you explain further how this relates to a projected stock market crash? (Other than ECO101 of 'if bonds go up stocks go down')

Do you have a specific question? 99% of it comes down to Econ101 and asking where the best return is expected.

Edit: Berkshire Hathaway's largest position is apple. PE of 30, or 3.3% of value, and take on some risk. Alternatively, you can purchase bonds at a 5.3% rate, and basically no risk. You will put your money in bonds unless you have a hot tip about apple sales. You might even sell some of your apple stock to buy more bonds.

If you're projecting a crash, I assume there's more to it than "bonds up stocks down". Is there?

Depends on what you are calling a crash. I didn't make any specific claim, but I expect stocks to continue going down as long as bonds are high.

Berkshire Hathaway's largest position is apple. PE of 30, or 3.3% of value, and take on some risk. Alternatively, you can purchase bonds at a 5.3% rate, and basically no risk. You will put your money in bonds unless you have a hot tip about apple sales. You might even sell some of your apple stock to buy more bonds.

If apple stock dropped 30%, then it still would yield less than risk free bonds.

Edit: Berkshire Hathaway earnings are up 40% because they are buying bonds, not selling more product.

Correction: The sage of Omaha cannot find opportunities to invest at the scale required to be meaningful to his company. If you are reading HN, you are unlikely to be directing capital at this scale so YMMV.

This is true regardless of the article, people who need to cash out soon should make less risky investments. I won’t cash out for decades and would love a crash where I can buy cheaper stock :)

Do companies like Berkshire with large piles of cash convert any of that into large holdings of metal reserves like gold, etc?

Apple also holds a lot - https://www.investors.com/etfs-and-funds/sectors/sp500-compa...

Is there a reason they may hold it in cash instead of gold, in some unique event where time is money, and there isn't the time to convert the gold to capital before they may want to execute on certain event types?

Anyone have book recommendations for what kind of moves are possible, why such large cash reserves are held by companies?

Buffett has long advocated a discounted cash flow approach to investing. Now with higher bond yields and probably a harder time for equities it makes sense for him to switch that way a bit.

He has quite a good explanation of that in the 1992 letter if you ^F for Burr Williams https://www.berkshirehathaway.com/letters/1992.html

Since then book value per share has gone from $7,745 to about $380k now so the approach seems to have worked ok.

A cash pile of $157 means they don't have anything worthwhile to invest in. Poor business policy.

Inflation is nibbling that away by roughly 10% a year. (So about $16 billion evaporating away per year).

Cash doesn't mean cash. More like short term bonds.

Same thing applies. Keeping that amount of money unused means they can't think of anything worthwhile to invest in and earn with.

Much the same sort of thing as when companies spend good money on just buying back shares, instead of using that money on increasing production and sales.

> they can't think of anything worthwhile to invest in and earn with

Yeah I mostly agree with that (even though I believe their insurance business is backstopped with cash as part of their strategy), but this part isn't true because we're not talking about paper cash:

Inflation is nibbling that away by roughly 10% a year. (So about $16 billion evaporating away per year).

Currently "cash" yields over 5% and inflation is less than that, so nothing is evaporating away.

Also, there have been plenty of times in history where cash has outperformed the alternatives (the last couple years being an example).

We need a new way of counting currency for these massive numbers. There is just no context here.

I suggest median expected lifetime earnings.

Can you expand on the mean expected lifetime earnings?

Basically you take the average or median lifetime income of normal everyday workers (i.e. those who leave school around 18, go to trade school, and work until retirement), and then you compare that amount of money to the income or wealth of a rich person.

That way you can see that for example Jeff Bezos makes 1.43 million $ an hour - about as much as the average American makes across their entire life. A shocking disparity.

[1] https://finance.yahoo.com/news/jeff-bezos-makes-1-49-1602190...

[2] https://www.firstrepublic.com/insights-education/how-much-do...

He made $1.43 million an hour from stock appreciation in a specific year. We didn't see similar headlines when he lost $20 billion+ from a stock slump; "Bezos Loses $2.3 million per hour! plans to commit suicide..."

You have a good point about wealth disparity, but thanks for spreading clickbait..

So even if he loses 20 billion a year, even if Elon Musk loses 40 billions of dollars in a short time, nothing changes for them. They still have tens of thousands of times more money than a normal human can make.

Those numbers are still too big to be easily comprehensible.

The numbers aren't important - what's important is is "Jeff Bezos makes more money in a single hour than you are likely to make in your entire life".

Given an expected lifetime earnings of 2.3 million, their cash pile is equivalent to 68 thousand lives.

Can we measure money in units or souls?

The money of this corporation doens't belong solely to any one individual though.

Does this unit have a soul?

For Berkshire in particular most of this cash is part of the float for their insurance business which they need to have on hand and available to pay out for potential claims and they will only ever keep that part of the float in cash equivalents. Still they have a large amount of cash beyond what they need for the float which they attribute to lack of opportunities to invest in given their immense size and investing style. They also want to be able to be in a strong position in a downturn or crisis situation. Hoarding all that excess cash still presents a major opportunity cost for them, although now not as much as before with higher interest rates.

A rosy view is that these companies learned a lot from Covid - that economic landscapes can change extremely quickly and they need to be prepared to endure downturns, but also have cash on hand to take advantage of opportunity (like hiring en masse when they see the need).

It's not really cash, the money is invested in (mostly US) government bonds.

The reason it's in bonds and not in shares, is simply that bonds nowadays give a pretty decent revenue.

Some companies, like Apple, simply make so much money that it's hard to invest it all in new business. A large amount of the money is also overseas so there are tax implications during repatriation. Many investors also prefer that a company like Apple buy back shares rather than pay out a dividend so the investors can better control their own tax situation. Given how the low the interest rates were until recently, it also made sense for a company to borrow the money to buy back the shares using their cash as collateral.

Keep in mind that regardless of interest rates, sitting on cash for interest is not what investors want long term. Investors can do that themselves without taking on the equity risk.

> Is there a stated reason that a handful of the biggest companies are sitting on cash piles greater than the yearly GDP of mid sized nations?

The stated reason from Berkshire is that the management thinks that there are too few investment opportunities priced (far enough) below their value to be worth buying. Presumably though he thinks Berkshire stock is an exception though - and priced too low - else it would be reasonable to buy some of that back.

They can get guaranteed at least 4% on it right now.

Too long without a world war + hordes of cash being printed for decades. Capitalism is concentrative by its nature and this cold fact has never been addressed by any government, anywhere. It was only after wars that inequality flattened.

T-bills exist for a reason though, so you’d also need to consider what his money is being used for by the govt!

You are just making it worse, I think I'm going to be sick.

I find it uneasy that someone has managed to loan that much money. And then can keep paying it back and loaning it again. When numbers really start to look quite extreme...

Years later people can't get over how crypto got eternally btfo by buffet.

Explain how Buffet definitely caused that?

There aren't a lot of options for them. Their best bet is to lend me $1B so I can conquer the world. Obvious choice.

Buffet knows that you never outsource your core competency.