Everything in the world is relative, including Warren Buffett’s cash position.
After Berkshire Hathaway Inc.’s third-quarter report on Saturday, investors and commentators made a lot of noise over the fact that Buffett’s cash hoard had ballooned to a new record of $157.2 billion, most of it in Treasury bills. For some, the development was a sign from the Oracle of Omaha himself that a global recession was nigh, with echoes of his cash hoarding before the financial crisis. For others, it suggested that the eminent 93-year-old investor had lost his knack for finding deals. In reality, it’s just Buffett being Buffett, exhibiting his usual restraint in a market without many bargains.
First, consider the cash pile itself. While Berkshire’s position in T-bills has indeed grown, so too has the rest of its portfolio. At about 15.4% of total assets, cash and equivalents are just a hair above their 20-year average. The out-of-context focus on the “record” makes the situation sound much more extreme than it is. Today’s cash-to-assets ratio pales in comparison to the levels that prevailed before the financial crisis, which allowed Buffett to opportunistically scoop up legendary investments involving Goldman Sachs Group Inc., General Electric Co. and Dow Chemical Co.
Nowadays, Berkshire hardly looks like a firm that’s bracing for Armageddon. In fact, it still has significantly more exposure to two consumer products companies (Apple Inc. and the Coca-Cola Co.) than it does to Treasury bills. That’s clearly not how I’d structure my portfolio if I had foreknowledge of a looming market implosion.
Second, recall that Buffett’s special sauce is his patience. He and his 99-year-old partner Charlie Munger made their fortunes by holding a lot of cash (sometimes a bit more, sometimes a bit less) and waiting for the chance to invest in high-quality brands at attractive prices. Occasionally, they’ve made lower-quality investments, too, albeit at very attractive prices, but the key has always been in maintaining self-restraint and the financial cushion to hold out for the right deals to come to them. That’s why it’s almost funny to see the periodic handwringing about the amount of cash on the balance sheet; it’s a cornerstone of their famous and often-emulated investment strategy.