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Why this Berkshire Hathaway shareholder isn't frustrated Warren Buffett won't spend nearly $130 billion in cash

Brian Sozzi

The Oracle of Omaha, Warren Buffett, may have one very good reason for continuing to hold onto a large chunk of cash.

He wants his successors to be very well capitalized and investors reassured by a big cash cushion.

“We aren’t frustrated because we have owned it for decades and have made an awful lot of money,” Bill Smead of Smead Capital Management said on Yahoo Finance’s The First Trade. “It is a little frustrating that he is holding so much cash, but we believe he is holding so much cash because the statistical likelihood is that when your two key employees are 89 and 95 years old that when one of them goes in the hospital investors are going to worry.”

Smead points to the reaction in Berkshire’s stock (BRK-ABRK-B) when Buffett revealed he had been diagnosed with Stage 1 prostate cancer on April 17, 2012 as a lingering concern among investors.

Berkshire’s A and B class of shares fell about 2% from April 17 to April 23, lagging the S&P 500 by a full percentage point, according to Yahoo Finance Premium data. Both classes of stock rallied about 12% into the end of the year as Buffett reassured investors the cancer was not life threatening.

Even still, the news was a scare to Berkshire investors such as Smead, who for decades have made money on the back of Buffett’s value-focused stock calls and headline-grabbing acquisitions.

“When one of them [Buffett or partner Charlie Munger] has a medical malady, they’ve got that bazooka loaded to buy back Berkshire Hathaway stock if people panic. Secondly, there hasn’t been anything laid in Buffett’s lap, although he did buy into Occidental Petroleum—we like that idea,” Smead adds.

Berkshire Hathaway Chairman and CEO Warren Buffett, left, and Vice Chairman Charlie Munger, briefly chat with reporters Friday, May 3, 2019, one day before Berkshire Hathaway's annual shareholders meeting. An estimated 40,000 people are expected in town for the event, where Buffett and Munger preside over the meeting and spend hours answering questions. (AP Photo/Nati Harnik)

Berkshire exited the third quarter with nearly $130 billion in cash. Although Buffett hasn’t made a splashy acquisition since Precision Castparts in 2015, he has spent some of Berkshire’s cash hoard. Buffett has amassed a sizable investment in Apple (AAPL) and has added Amazon’s (AMZN) stock to his equity holdings. Berkshire spent $700 million buying back its own stock in the third quarter.

And earlier this year, Buffett plunked down $10 billion to invest in Occidental (OXY) to help it takeover Anadarko.

Yahoo Finance was the exclusive online host of the Berkshire Hathaway Annual Shareholders Meeting this year. View our archive of the event—including exclusive interviews with Buffett and Munger—here.

Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Follow him on Twitter @BrianSozzi

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