1 Billion Reasons To Buy Buffett’s #1 Stock

While Buffett’s massive cash pile of nearly $300 billion on the books at Berkshire Hathaway has been making waves, what few are paying attention to is how much he’s actually earning on that money every day, week or month.

It turns out Buffett is raking in just shy of a cool billion dollars each and every month just from interest earnings on his war chest. Over the course of the next year, with compounding, he’ll likely take in a full $12 billion.

Even more remarkably is this is the number earned only on cash parked in Treasury bills, which doesn’t even represent his full liquid reserves. So what’s Buffett going to do with all that money?

Key Points

• Berkshire Hathaway earns nearly $1 billion monthly from interest on its $276.9 billion cash reserve, totaling $12 billion annually.
• The cash reserve acts as a protective moat, allows for share buybacks, and provides flexibility to buy underpriced assets during market downturns.
• Buffett needs to find large-scale investment opportunities to deploy the rapidly accumulating cash.

Buffett’s Cash Is a Call Option

With a market capitalization closing in on a trillion dollars, Buffett’s war chest of $276.9 billion serves many purposes. For one it acts as a wide moat that protects the company in the event of weakening operations across the various businesses owned. It also provides a deep reserve that Buffett can tap into in order to repurchase shares. Over the past 6 years alone, he has bought back almost $80 billion of stock.

But perhaps the most intriguing aspect of the cash is how it serves as a virtual call option, providing enormous flexibility to the Oracle of Omaha to snap up deals when they crop up.

If the recent volatility teaches anything it’s that the unexpected can happen almost out of the blue at any time. And when Rome burns, as it did during the 2008-09 period when prestigious investment banks and aggressive mortgage lenders were on the verge of bankruptcy, Buffett has the deep reserves of liquidity to step in and buy underpriced assets.

So too now will his ample supply of cash offer him the optionality to buy up distressed assets or simply those that are discounted by the market in a heartbeat. The ability to move fast when buying up such deals is a strategic advantage, and one that Buffett has famously capitalized on time and again.

What Will Buffett Do With All That Cash?

Buffett has a remarkable problem on his hands which is that Berkshire is almost producing too much cash to deploy fast enough. As a result, Berkshire’s cash pile now represents close to 4% of the entire bills in the Treasury market, so as Elon Musk said, he essentially is the new de facto Federal Reserve who can act as the lender of last resort. Of course, it’s a slight exaggeration as the Fed can turn on the money-printing spigots without limit but it’s not far off.

Berkshire not only is generating $1 billion monthly from interest alone but it’s also earning massive amounts from its combined operations. At last count, the total was $9 billion in levered free cash flows in the past quarter.

With $4 billion monthly produced through interest and cash flows, Buffett has the problem few of us will ever face; how to invest cash as rapidly as it’s earned.

Right now, he’s going to need to, as he describes in his own words, go elephant hunting. He needs a giant company to go on sale in order to deploy that cash because picking off the jackals and hyenas, aka small companies, simply won’t do.

It’s not worth his time and won’t move the needle whatsoever to buy small-cap firms trading at a discount, he needs to buy the giant Fortune 500 ones that can generate an outsized return. But make no mistakes about it, that cash pile provides the optionality to do just that at a time when fear hits extreme levels, asset prices have crashed and he can move swiftly.