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In this article, I will be examining the balance sheet of Warren Buffett's Berkshire Hathaway (NYSE:BRK.B) to see what investment actions he has taken over the 15 years. There are two balance sheet categories I specifically wanted to look at, which were cash levels, and equity investments. To compile the data I went to the Berkshire Hathaway SEC filings page and searched for 10-Q filings, and 10-K filings, which contained the balance sheet data, I was looking for. I tediously went through each filing, and recorded the values of "cash & cash equivalents," and "equity securities" in a spreadsheet. The table below shows the data [in billions] that I collected as well as the closing price of the S&P 500 (NYSEARCA:SPY) on the last day of each quarter.

Date

Cash

Equity Investments

S&P 500

Date

Cash

Equity Investments

S&P 500

12/31/1998

13.5

39.7

1229.23

3/31/2006

37.6

49.7

1294.87

3/31/1999

14.2

39.6

1286.37

6/31/2006

37.2

52

1270.2

6/31/1999

4.2

38.9

1372.71

9/31/2006

36.9

55.5

1335.85

9/31/1999

4.7

34.7

1282.71

12/31/2006

37.9

61.5

1418.3

12/31/1999

3.8

39.5

1469.25

3/31/2007

39.5

65

1420.86

3/31/2000

2.8

34.5

1498.58

6/31/2007

39.9

73.6

1503.35

6/31/2000

1.9

35.6

1454.6

9/31/2007

38.6

77.8

1526.75

9/31/2000

2.7

36.5

1436.51

12/31/2007

37.7

74.9

1468.36

12/31/2000

5.2

37.6

1320.28

3/31/2008

31.1

72.5

1322.7

3/31/2001

5.8

30.4

1160.33

6/31/2008

28.1

69.5

1280

6/31/2001

7.1

29.1

1224.38

9/31/2008

27.8

76

1166.36

9/31/2001

4.9

27.2

1040.94

12/31/2008

24.3

49

903.25

12/31/2001

5.3

28.6

1148.08

3/31/2009

22.7

37.5

797.87

3/31/2002

7.3

31.2

1147.39

6/31/2009

21.4

45.7

919.32

6/31/2002

7.2

31.2

989.82

9/31/2009

23.8

55

1057.08

9/31/2002

8.4

27.9

815.28

12/31/2009

27.9

56.6

1115.1

12/31/2002

10.2

28.3

879.82

3/31/2010

22.7

58

1169.43

3/31/2003

16.1

27.4

848.18

6/31/2010

25.1

52.2

1030.71

6/31/2003

24.4

31.7

974.5

9/31/2010

30.7

55.3

1141.2

9/31/2003

26.9

31.1

995.97

12/31/2010

34.7

59.8

1257.64

12/31/2003

31.2

35.2

1111.92

3/31/2011

38.4

61.8

1325.83

3/31/2004

34.6

36

1126.21

6/31/2011

43.1

66.3

1320.64

6/31/2004

35.4

36.9

1140.84

9/31/2011

30.5

67.2

1131.42

9/31/2004

38.1

35

1114.58

12/31/2011

33.5

76

1257.6

12/31/2004

40

37.7

1211.92

3/31/2012

33.5

87.9

1408.47

3/31/2005

44

38.6

1180.59

6/31/2012

36.8

85.2

1362.16

6/31/2005

43.2

41.3

1191.33

9/31/2012

41.8

87

1440.67

9/31/2005

41.1

45.2

1228.81

12/31/2012

42.3

86.4

1426.19

12/31/2005

40.4

46.7

1248.29

3/31/2013

43.9

95.8

1569.19

6/31/2013

31.2

101.9

1606.28

9/31/2013

35.3

104.8

1681.55

Chart 1: The Big Picture

The chart below shows the total value of equity investments [Red Line], cash [Blue Line] on the left axis, and the S&P 500 [Green Line] on the right axis. There are a couple of things I noticed on the chart that were interesting, the first being that the total value of equity investments has significantly increased since the last quarter of 1998. Using data from above the value of Berkshire's equity investments increased 163.98% over that period; when at the same time the S&P 500 returned 36.80%. The second item I noticed was the difference in the change in cash after the tech bubble, and the financial crisis. As the tech bubble was bursting, the chart shows that Berkshire Hathaway was increasing the amount of cash. During the financial crisis when stocks were falling, Berkshire Hathaway saw a decrease in cash because Berkshire was using the cash to buy equity investments on the way down. Historically, when Berkshire has above $40 billion in cash, the next 2-3 years have proved to be strong bull markets, and with Berkshire currently having $35.3 billion in cash, I think based on the fact this is near the $40 billion cash mark, the market could continue its rise higher.

(click to enlarge)

Chart 2: S&P 500 to Equity Ratio

The chart below shows the ratio [Blue Line] of the value of the S&P 500 to the value of Berkshire's equity investments. The first item I noticed was that during the tech bubble, the ratio was in a significant bubble when compared to current levels. The second item I noticed was that from the end of 1998 to the end of the tech bubble bursting in 2002, the ratio was highly correlated to the S&P 500, but since that time even with financial crisis the ratio has continued to fall. The final item I noticed was that the lowest level of the ratio was at the end of the 3rd quarter of 2008, and even with the significant rise in the S&P 500, the ratio has been relatively flat over the last five years, and is near the lowest levels. With this metric being at levels that were present at the heart of the financial crisis, this leads me to two conclusions about where this metric, and in turn, stocks will go. The conclusion I can make is that the equity investments of Berkshire are outperforming the S&P 500. As the value of the equity investments increases faster than the S&P 500, this would lead to the metric continuing to fall. This metric could also be used as a contrarian indicator as well, because if the metric is increasing, that means the S&P 500 is outperforming Berkshires equity investments, which happened during the tech bubble, and started to happen after the financial crisis.

(click to enlarge)

Chart 3: Equity vs. Cash difference

The chart below shows the difference [Blue Line] between the value of equity investments, and cash that Berkshire has. The first item I noticed that really stands out is that at the end of 2004 and beginning of 2005, Berkshire had more cash than it did equity investments, which proved to be a solid buying opportunity. The second item I found interesting was the percentage change from the peak in the equity-cash value for the tech bubble and the financial crisis, and its relationship to the current value. The table below shows the calculations I used to estimate the new peak in the ratio using the percentage change from the previous peak-to-peak values of the equity-cash value. Based on this metric the equity-cash value could be near a peak, and thus as what has happened at the last two peaks, stocks could potentially fall.

12/31/1999

35.7

9/31/2008

48.2

Percent Change

35.01%

Previous Peak

48.2

Estimated New Peak

65.1

Current Value

69.5

(click to enlarge)

Closing Thoughts

In closing, I believe looking at what one of the smartest investors does is very helpful in gaining clues as to the potential direction of the overall market. Out of my three charts, the first two I concluded were bullish for the market, and the third chart I concluded could be bearish, but since I only have one data point of one peak-to-peak percentage change, it is somewhat difficult to estimate a new peak value for this market cycle.

Disclaimer

Source: Market Clues From Berkshire's Balance Sheet