The Most Underrated Part of Berkshire Hathaway Has Nothing to Do With Its Cash Pile

Berkshire Hathaway (NYSE: BRKA)(NYSE: BRKB) is a shockingly diversified industrial conglomerate. However, it is classified as a finance company due to its large insurance operations. This is an important nuance to consider as you examine the nearly $400 billion in cash on the company's balance sheet. It is an important safety valve and provides firepower for investments when the time is right. But cash isn't what this business is built on; the float is.

What does Berkshire Hathaway do?

From a big picture perspective, Berkshire Hathaway does a lot of things. However, former CEO Warren Buffett was really an allocator of capital, treating the company as his personal investment vehicle. Basically, buying Berkshire Hathaway was a way to trade alongside Warren Buffett. The fact that Berkshire Hathaway has a huge cash hoard today has nothing to do with Buffett's long-term success.

Image source: The Motley Fool.

The real magic in Buffett's approach is that he realized that he could use the float to invest in stocks and even to buy entire companies. The float is the cash that an insurance company generates from premiums. Some of that money will eventually be needed to pay claims, which is why most insurance companies take a conservative approach with their investments. Many insurers stick to bonds.

Buffett realized that he could be a little more aggressive and generate higher returns. That said, Berkshire Hathaway couldn't be reckless with the float. Buffett's approach is basically to buy well-run companies when they look reasonably prices and then hold for the long term. Core stock holdings include Coca-Cola (NYSE: KO) and American Express (NYSE: AXP).

Berkshire Hathaway's story hasn't changed

The bad news is that Buffett stepped down as CEO at the end of 2025. The good news is that he hand-picked his successor, Greg Abel. Abel has worked with Buffett for decades, and Buffett remains the chairman of the board, so he's available to Abel if needed. The nearly $400 billion in cash, meanwhile, provides Abel with a backstop as he takes over the CEO role.

However, the best part of the story is that Berkshire Hathaway's biggest tool, the float, is still at the core of its business model. In fact, since Buffett popularized the approach, other companies have started to copy him. The most notable is Markel Group (NYSE: MKL). However, more recently, Brookfield Corporation (NYSE: BN) has put up Berkshire Hathaway as its model, stating that its goal is to be an investment-led insurance company.

That said, if you understand the value of the float, there's no reason why you can't stick with the original: Berkshire Hathaway. Sure, there's a new CEO at the helm, but the core model hasn't changed one bit.

American Express is an advertising partner of Motley Fool Money. Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends American Express, Berkshire Hathaway, Brookfield Corporation, and Markel Group. The Motley Fool has a disclosure policy.