He also says he considers assets come form liabilities when other corporations generally dont.
How do you reconcile that?
Because the more important question in this context is how much cash would Buffett put to work in a further downturn? I get that is a guessing game but it is educated in different ways by each of us.
How much would he put to work buying banks if this is a banking crisis coming up?
I may have steered you wrong about the liabilities in there somewhere. The unrealized gains/losses are more minor.
BRK’s liabilities are far greater than the unrealized figures.
The liabilities do have to be put against assets to understand how far BRK can leverage.
Buffett is not saying ignore all the liabilities. He is saying the net unrealized which is minor enough you can ignore. You have that all wrong.
Buffett keeps it clean at
Years 2022 back to 2018 …by percentage ratio
Total Liabilities / Total Assets 49.33% 46.29% 48.34% 47.59% 50.20%
First BRK is not that leveraged. Second BRK has responsibilities for how much leverage they will use.
If you think BRK will do what it did in 2009 in a banking crisis what is the case for that?
The amount of cash BRK has is irrelevant to “bailing out banks” because the amount required for “bailing out banks” is MUCH higher than any company or person has access to. What Buffett did in the past, and may someday do in the future, is to instill some sudden confidence in the banking sector by making medium-sized investments into the bank in a way that shows strong confidence (of lack of failure) and is eventually very beneficial to the Berkshire’s bottom line. For example, to a large US bank, he could rapidly invest $5B equity into a preferred issue that pays an annual dividend of 10% that also comes with warrants on another $5B of regular shares at an attractive exercise price. This shows that Buffett believes that the large bank has no chance of failing and instills confidence across the sector. But, he would only do so if he really believes it is so, and he really believes there is a good chance for Berkshire to make a good return on the investment.
There is also a question about whether this is a banking crisis or a commercial property crisis. While the policy is NOT to support the banks directly the depositors are guaranteed making that a non issue. Mostly because the FDIC can walk in.
I am interested in your opinion on how much leverage BRK has? Meaning how much will Buffett invest in any equities in a crisis? Keep in mind his statements that his assets are reflected in his liabilities. He does not take that lightly.
“Equities” is a special class of investment and so the question is not really answerable. During the 2009 crisis he invested in a range of possibilities, from straight up “equities” to loans to preferred shares to purchasing companies outright. The mix of “equities” would likely depend on the opportunities of the market at the time.
But for a general guideline, in 2008 Berkshire had $122B in cash, and during the financial panic it put $26B of that to work. The most widely publicized was the $5B to Goldman, really just a “confidence” push, but that doesn’t mean he didn’t make money from it. He also did things as small as $300m to Harley Davidson, again in the form of a loan, and he put $4B as a loan to Mars, Inc. with convertible shares, IIRC.
So it’s appears he put only about 20-25% of his available cash to work immediately, but that is not surprising since he expected to find a plethora of enticing possibilities after the immediate crisis. Which he did: he bought BNSF railroad for $44B a year or two later, and various other things along the way.
The Journal story details some of it, at least the immediate aftermath part:
Within that expanded time frame he also bought Lubrizol for around $10B and had a big piece of the Kraft/Heinz buyout (about $12B for his part.)
That is a well laid out answer with a proportional idea of what Bufflett might do this time around but not with the banks in my opinion. It is very unclear there will be a banking crisis that is opportune or that during this cycle Buffett wants more banking exposure.
Would Buffett go tech in a market downturn?
Would Buffett go major food producers?
Where would Buffett go outside of financials?
Wouldn’t we all like to know? But do not leave that blank folks throw in your two cents.