Let's dig deeper into why Warren Buffett is holding $144 billion of cash on him, instead of choosing to invest it...
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Warren Buffett has got a gigantic cash pile on his hands, with his investing firm Berkshire Hathaway. As of the latest quarter in 2021 heโs got $144 billion dollars on him, just ripe and ready to deploy.
With all of this cash on him, you might think that heโs buying up stocks left, right and centre. But this is not the case at all, in-fact itโs quite the opposite.
As we can see, heโ barely bought any stocks this year, 5 in the first quarter, and 4 in the second quarter. And these are all extremely small buys, in-fact if you add all the buys up together, they make 1.08% of the entire portfolio. Thatโs nothing.
https://www.dataroma.com/m/m_activity.php?m=BRK&typ=b
Then you look at the stocks that heโs sold, and it seems that he canโt stop unloading the shares that he owns. Added all up in terms of percentage heโs sold 4 times more stocks compared to what heโs bought in 2021โฆ
https://www.dataroma.com/m/m_activity.php?m=BRK&typ=s
So the question is why is he doing this. Why is he behaving so unusual compared to most investors who canโt stop buying. Now itโs not the easiest to find out his personal reasons for doing this, because heโs been about as quiet as a church mouse lately.
He conducted one long interview for his shareholders in May 2021, and thatโs about all weโve heard from him. Heโs just been keeping it quiet, and making his moves silently tucked away in his office in Omaha.
So why. Why is Buffett holding all of this cash, $144 billion, when he could just put it in the stock market, put it in something simple like an S & P 500 index which has been doing so well recently.
Over to you Warrenโฆ
(Audio 1)
If we look back throughout history, it gives us big clues as to why Buffettโs saving up all this cash.
The somewhat comical thing about the 2008 recession, was that while most investors were panicking having the worst time of their lives, Buffett was in heaven. Stock prices were crashing, housing prices were collapsing, everyone basically lost money that year, and Buffett was smiling.
Why?
Because he could buy stocks at unbelievably cheap prices. Everything was on sale. But what was the one thing that Buffett needed if he was to take advantage of this crisis. He needed cash on him. If he didnโt have cash he wouldnโt be able to buy anything.
So in 2007 just before the recession hit, he was saving cash like a madman. He had almost $70 billion in cash, which back then was a lot of money for him. Then when the stock market crash hit, in late 2007 and throughout 2008, what do you think he did with his cash pile? He started deploying his cash and was buying stocks like a madman. Stock prices were just so cheapโฆ
And this ended up working out very well for Buffett over the long-term, since the crisis his stock Berkshire, is up almost 500%, thatโs an increase of 6 times in the price of his companyโฆ
Right now Buffett is playing the same strategy that heโs played throughout his investing career. Most investors focus on their short-term gains, Buffett focuses on the long-term, and what can we it seems to have worked out for him.
The other thing he also mentioned was that heโs always looking for those big business opportunities that come along very rarely, but when they do come along he needs a lot of cash. He needs $10โs if not $100โs of billions to buy elephant companies.
For example in 1972, Buffett needed a lot of money, at least back in those days to buy seeโs candy. He bought the company outright for $25 million dollars, again a lot of money back in the day, but it paid off. In 2020, last year, Seeโs Candy made $383 million in sales, and $82 million in profit.
So the yearly profit is now more than triple the amount he paid for the business outright. If Buffett had not kept cash on the sidelines, he wouldnโt have been able to buy the business outright, and he wouldnโt have made this money.
Buffett needs the big cash pile for what he calls his โElephant Gunโ, itโs just in case a big business comes along, selling for a bargain, Buffett needs it on hand to snap it upโฆ
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