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Morning Brief: Berkshire Hathaway’s buyback

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Yahoo Finance Editor-in-Chief Andy Serwer joins Myles Udland to break down Monday’s Morning Brief, which details Berkshire Hathaway’s repurchase of its shares after quarterly earnings led to a stockpile in cash and Warren Buffett’s hesitation in seeking acquisitions after overpaying for Precision Castparts.

Video Transcript

MYLES UDLAND: Welcome back to "Yahoo Finance Live" over the weekend. We got quarterly results from Warren Buffett's Berkshire Hathaway, the company reporting $69 billion in topline revenue A share, earnings per share, coming in just over $18,000. I think that's more fun than the B shares, which are divided by 1,500, gets you to $6,000.70 adjusted earnings per share. Always liked the nice big five-digit earnings per share that you only get, of course, Berkshire Hathaway shares trading in the, I think, $300,000 at this point, $400,000, something like that.

But of course, the big headline here continues to be the cash pile that Warren Buffett is sitting on, some $141 billion as of the end of the second quarter and how Buffett is putting some of that cash to work, of course, with Berkshire repurchases. Joining us now to discuss all things Warren Buffett and Berkshire Hathaway, "Yahoo Finance" Editor-in-Chief, Andy Serwer.

Andy, the buyback story for Berkshire, of course, has been ongoing but is really, over the last couple of years, taking on a new phase as we saw those buybacks reinstituted. And, you know, I mentioned this morning in the "Morning Brief," people will ask, what will Buffett buy? And I suppose the answer is right in front of us. There's not going to be another big acquisition, at least so far as Warren Buffett currently believes.

ANDY SERWER: Yeah, Myles, you also noted that the last acquisition he made, Precision Castparts-- not working out so well in the sense that he had to do a billion write-off and had to basically apologize for it. Likes the business still, but suggested that he overpaid for it. So if that's your last big deal, maybe you're a little gun-shy. I mean, it's difficult to suggest that about Warren Buffett.

You know, it gets tougher and tougher. It's the tyranny of large numbers to find a company that's big enough to actually move the needle for Berkshire Hathaway. And of course, one thing that's very different nowadays, you guys, is just the huge amount of money that's in private equity right now, that's floating around, sloshing around and SPACs. I mean, everyone's looking for a deal right now, so he does not have this territory to himself anymore at all.

JULIE HYMAN: Well, and there are also fewer deals of course, Andy, as the other side of that, right? So what can we sort of extrapolate not just about Berkshire itself and the environment but the bigger environment here?

MYLES UDLAND: Yeah. Well, I mean, as Myles can tell you, I've been saying things have been frothy for too many years. So yeah, things are frothy, there's no question about that. And there's just so much liquidity out there.

And with Berkshire, you know, it's a tough place to be, I guess. You got your $140 billion in cash, which sort of the same level it was before. You know, you've got a situation where you're buying back stock, it's a little bit less than the prior quarter, there's nothing to buy. You know, your investments are doing OK.

I mean, you had a big snapback. We shouldn't undersell that point, operating revenue up 21%, operating earnings up 21%, the stock up 23% year to date, but really kind of a steady as it goes quarter. And I think that's kind of reflective perhaps of what you guys were talking about in the previous segment, which is, you know, we're kind of climbing this wall of worry right now with the Delta variant. And that is, you could argue, not a bad place to be. It makes it difficult to buy things, but it's kind of an ultimate hold market, right?

BRIAN SOZZI: And you think part of the hesitance on the part of Buffett to go out and buy an acquisition signals, it's going to be a different Berkshire Hathaway when he is no longer at the company. And perhaps, some of these companies that they do own, maybe they get spun off, maybe some of the stakes in these companies like a Coca-Cola, maybe they get sold off, too.

ANDY SERWER: Yeah. I mean, speculating is the ultimate parlor game, right, Brian? For Berkshire shareholders and Berkshire watchers. You know, it's funny because he's going to leave his successor in a more difficult situation than he's in in the sense that, again, finding things is harder than ever, right? So it's not like, oh, gee, I'll just go and buy the MGM film library. Well, oh, Amazon just did that.

I mean, there's just so many people out there looking for these things. And when you do do a deal like Precision Castparts, there is a tremendous amount of risk because you're buying something that's so big. And so if it is Greg Abel and company, it's going to be very difficult to fill those shoes. And maybe it is just on autopilot.

And you know, there are a lot of people out there who have suggested what you're saying, Brian, that the next CEO of Berkshire Hathaway is going to be the person who spins things off. And that would be a very different company, because buy and hold forever with a great manager in place running a great business has been the MO of this company for many, many decades.

MYLES UDLAND: And perhaps, we're staring at the future of Berkshire or have been for some time with Ted and Todd. You know, Ted Weschler and Todd Combs, running the equity parts of the business, of the holdco, as we can call it, that's where the returns will likely come from, the diversification as it were. And then, you know, the other thing gets sold down.

And Andy also struck me going back and rereading this year's annual letter. You know, Warren Buffett spent some time talking about how bad conglomerate structures can often be, and I thought sort of telling Berkshire shareholders, I've always tried to not end up being a bad conglomerator, which he says have earned their reputations.

And the way you do that is, you go by average businesses that you don't really understand, you pay too much for them, and then it bleeds into other parts of the enterprise. And perhaps, he is content to let private equity and SPACs and others take their chance at companies that Buffett himself and others might believe are overvalued or just not of high quality.

ANDY SERWER: Yeah. I mean, isn't it funny, Myles, that there's a couple of points like that where he says, it's bad when you do this. Except when I do it, it's OK. And so far, that's worked out. I mean, this conglomerates thing, it's also taking big risks, concentrated risks in equities, right? Don't do that, of course I do it. And it's worked out. You should diversify, but I don't diversify.

I mean, the big stake in Apple is the case in point. You can stay in Apple, everyone owns Apple. But I think the point that those guys would make is that it was still, when they bought it and perhaps today-- I mean, they still own a lot of it-- underappreciated. It's hard to imagine, the most popular widely held stock, but it's still underappreciated. I guess that's the thesis.

MYLES UDLAND: I think that is thesis. And, again, talking about the engineering side of that. You know, walking us through the math of Apple repurchases their shares, we get paid the dividend, we reinvest that into Apple, voila, we loan more of the company without doing a whole lot of work.

But always fun to check in on what's going on with the Buffett empire. I think his birthday's coming up in a couple of weeks. Maybe we'll do another round of Buffettology. This is 92 for him, Andy. 91, do you remember?

ANDY SERWER: 91. Yeah.

MYLES UDLAND: Yeah. 91. So we'll do that. I think it's August 28 or something around there if I'm not mistaken. "Yahoo Finance" Editor-in-Chief Andy Serwer, thanks stopping by. I hear we'll see you in person on Thursday. Rumor has it.

ANDY SERWER: That's it, and that's the ticket. Yeah, batten down the hatches, Myles.

MYLES UDLAND: That's right.