This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
The last few months have been particularly stressful for many investors. April saw one of the largest market drops in years, with the S&P 500 falling more than 10% in two days. While the market has recovered, many are looking for an investment that can bring stability and peace of mind.
Over the course of the past few years, Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) has amassed the largest pile of cash and cash equivalents in its storied history -- a reserve that could help it weather a major economic storm, even coming out ahead. The company certainly has a great track record of doing so in the past.
So, with all the uncertainty, is Berkshire Hathaway the smartest investment you can make today?
A major change is coming for Berkshire
Of course, the elephant in the room is the fact that Warren Buffett just announced he will step down as CEO. He has been the inimitable leader of the company for the past 60 years. So his departure will no doubt have an effect on the company.
I believe, however, its effect will be much less than some investors fear. In fact, I think it will be mostly negligible. That's not to take away from the genius of Buffett but rather to acknowledge that he and the rest of Berkshire's leadership have been anticipating and preparing for this very moment for years.
Buffett has taken great pains to make the transition as smooth as possible and will remain the company's executive chairman, providing guidance and advice to the new CEO, Greg Abel, when he needs it. More importantly, however, is that despite what his nickname implies, the "Oracle of Omaha" isn't blessed with supernatural abilities.
Instead, his success comes from a consistent and disciplined investing approach that he refined over many years alongside his longtime partner Charlie Munger. And thankfully, their ethos has been infused into the very fabric of Berkshire. I believe Abel and the rest of the senior leadership will be deft managers who carry the company's torch forward.
Lessons of the past
In the aftermath of the 2008 financial crisis, Buffett made several key investments that earned Berkshire massive returns. In just a few years, Berkshire had profited by several billion dollars off of the $5 billion Buffett invested in Goldman Sachs. In six years, Buffett's $5 billion in convertible notes he received from his Bank of America investment netted an on-paper profit of $12 billion (Berkshire held on to the shares).
Berkshire's cash reserves at the time -- much smaller than today's -- freed the company to be proactive when many companies were fighting to survive. I want to be clear; I'm not saying I think something akin to 2008 is coming anytime soon, but having hundreds of billions sitting on the sidelines means that when opportunities arise, Berkshire will be ready, even and especially if it's during a time of crisis.
A cash-rich business
Aside from the security of its cash reserves, Berkshire's core operations make it resilient during an economic crisis. While the company's investments in companies like Apple and Coca-Cola are where most investors focus, its core businesses are equally important. The companies' diversified businesses deliver consistent cash flow, and many operate in areas that tend to be somewhat "recession-proof."
Its insurance segment, the largest of all of its business arms, is a good example. Insurance is often mandated by law and is not a discretionary expense that consumers can suddenly cut. That being said, it's not immune to the effects of a downturn. Growth could certainly be slowed as consumers make fewer new purchases that require policies.
Admittedly, insurance also faces the threat of climate change. As natural disasters become more frequent and more severe, Berkshire and other insurers could see their margins pressured as they pay out more claims.
This was a major factor in why Berkshire reported a more than 60% decline in net income from the first quarter of 2024 to the first quarter of 2025. The California wildfires and Hurricane Helene and Hurricane Milton had a major impact on the company's bottom line.
While that 60% decline looks like a massive red flag, it will normalize; Berkshire's net income should be back on track in the next few quarters. And in spite of these events, the company's core insurance business, GEICO, managed to grow its net income from $1.9 billion to $2.2 billion during that same period, and Berkshire's overall free cash flow (FCF) was still positive.
Berkshire is a smart move
For investors looking for some sanity in the recent chaos, I think Berkshire Hathaway is one of the smartest investments you can make today, even as Warren Buffett hands the reins to Greg Abel. The company's cash position -- both its reserves and its healthy cash flows from a diversified set of businesses -- means it will not only survive but thrive in a major economic downturn. Berkshire's cash and culture make it a smart choice, one that will help you sleep at night.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
