Buffet's Cash Position

[garlandwhizzer]

Currently Warren has a $112 billion cash position in Berkshire. He constantly looks for places to invest but has recently written:

Prices are sky-high for businesses possessing decent long-term prospects.

He only invests in companies selling at a significant discount to what he calls "intrinsic value." The fact that he can find no such good long term investments in the current market is interesting. Cash levels build as new dollars pour into Berkshire but it purchases no new equity. Apparently he is waiting either for equity market prices to decline significantly (bear market?) or for better prospects for corporate long term profit stability and growth before investing new dollars. He is even reducing the multibillion level of annual buybacks of Berkshire shares which suggests that Berkshire is his view is not the bargain it was last year when buybacks were higher. It is likely that in Buffett's view even Berkshire is close to its intrinsic value at present. Of course, like everyone else, he can be wrong but this is not exactly a ringing endorsement for the near term future of equity markets.

Garland Whizzer

[mickeyd]

Spend it all Warren before Gates takes at all away from you!

[AHTFY]

How long has Buffett had significant amounts of cash at Berkshire? Wouldn't he have done much better putting that in an broad stock market ETF?

[jcavana1]

The most interesting thing about his cash position, IMO, was that he didn't add to Apple at much lower levels than he was adding in the prior quarter.Either he thinks the stock is less attractive now or he is more averse to concentration than he pretends to be.

[pdavi21]

Why is Buffett still considered relevant? He has lost to index investing since 2004.

EDIT: I guess it was more of a tie.

[AHTFY]

Why is Buffett still considered relevant? He has lost to index investing since 2004.

And how much of his returns to begin with came from "beating the market" rather than operational performance of the companies Berkshire owns?

[Dandy]

A lot of people on this forum complain about cash being a drag and of course don't market time when you see the market is highly valued. They certainly have their good points especially for individual investors not plugged into analyzing the market 10 hours a day.

Buffet is sitting on over 100 billion in cash. He has sat on large cash hordes in the past.Yet he is considered one of the great investors of our era. Not suggesting we have piles of cash to try to time the market but maybe we can acknowledge that after a very long bull run and markets near highs that some cash/cash like assets aren't always a drag. Sometimes they make sense.

[nedsaid]

Currently Warren has a $112 billion cash position in Berkshire. He constantly looks for places to invest but has recently written:

Prices are sky-high for businesses possessing decent long-term prospects.

He only invests in companies selling at a significant discount to what he calls "intrinsic value." The fact that he can find no such good long term investments in the current market is interesting. Cash levels build as new dollars pour into Berkshire but it purchases no new equity. Apparently he is waiting either for equity market prices to decline significantly (bear market?) or for better prospects for corporate long term profit stability and growth before investing new dollars. He is even reducing the multibillion level of annual buybacks of Berkshire shares which suggests that Berkshire is his view is not the bargain it was last year when buybacks were higher. It is likely that in Buffett's view even Berkshire is close to its intrinsic value at present. Of course, like everyone else, he can be wrong but this is not exactly a ringing endorsement for the near term future of equity markets.

Garland Whizzer

If you look at forward P/E's on the US Stock Market, we are at 16.15, which doesn't look expensive to me at all. On the other hand, recent earnings were very strong, profit margins might be unsustainably high, and earnings estimates might be too optimistic. Also, the tax cut gave a boost to earnings. I am tempted to defer to Buffett's judgment here, after all he has been at this a few years and has had more success than I. Still, I have to say this isn't anything like 1999 or early 2000 when forward P/E's got to be about 32 and trailing P/E's about 45.

Just before John Bogle passed away, he delivered a warning that stocks looked really high to him and he suggested that people might cut back on their stock allocation. Again, Mr. Bogle had been at this a long time and his 1999 predictions were eerily accurate. He predicted 2% returns on stocks and 6%-7% returns on bonds over the next decade.

So we have two highly regarded experts that were recently negative on the markets. This with me at least raises an eyebrow.

Another thing, we have an almost Goldilocks scenario where everything is almost just right. Low inflation rates, (still) low interest rates, low unemployment, and 3% GDP growth. When things look so good, they look almost too good. Expectations for the economy might be too high. But still, a forward P/E of 16.15 doesn't sound like euphoria to me.

Keep in mind that Buffett and Berkshire-Hathaway are so big now that they must purchase large companies to make a meaningful difference. Remember that B-H is essentially an insurance company and that they have to keep lots of cash on hand for potential claims. So Buffett is a lot different from you and I.

[DrGoogle2017]

I don’t see anybody accuse Buffet of timing the market. What percentage is his cash bucket to his portfolio.

[nedsaid]

Here is a fuller quote of what Buffett actually said in his newsletter about market prices:

In the years ahead, we hope to move much of our excess liquidity into businesses that Berkshire will permanently own. The immediate prospects for that, however, are not good: Prices are sky-high for businesses possessing decent long-term prospects.

That disappointing reality means that 2019 will likely see us again expanding our holdings of marketable equities. We continue, nevertheless, to hope for an elephant-sized acquisition. Even at our ages of 88 and 95 – I’m the young one – that prospect is what causes my heart and Charlie’s to beat faster. (Just writing about the possibility of a huge purchase has caused my pulse rate to soar.)

My expectation of more stock purchases is not a market call. Charlie and I have no idea as to how stocks will behave next week or next year. Predictions of that sort have never been a part of our activities. Our thinking, rather, is focused on calculating whether a portion of an attractive business is worth more than its market price.

Buffett's comments were in the context of buying entire businesses. He actually said that he would be expanding his holdings of marketable securities. So he doesn't sound so bearish on the US Stock Market.

[revhappy]

Why do we keep getting different PE numbers? Someone up thread mentioned forward valuations are cheap at 16, however I have seen other analysts mention current valuations are at levels seen during dot com bubble. So which is which?

I like this article and kind of agree with it:

https://www.marketwatch.com/story/the-a ... 2018-10-01

[Valuethinker]

Spend it all Warren before Gates takes at all away from you!

That is confusing ownership of shares with a corporation.

The corporation will still have $112bn regardless of who is the largest shareholder.

If that becomes the Gates Foundation they could in principal lobby BH to pay a dividend - then all shareholders benefit.

Or to buy back shares - which BH already does.

Those are the only 2 ways to get cash from the corporation to its shareholders, in proportion to their holding. Other than a takeover for cash by another company.

The cash balance of BH is overstated as much of that represents premiums from insurance which will eventually be paid out in claims.

[Valuethinker]

How long has Buffett had significant amounts of cash at Berkshire? Wouldn't he have done much better putting that in an broad stock market ETF?

For decades.

Cash is an asset offset by the liability to insurance policies. Much of BH's cash is the "float" arising from insurance premiums. It needs to have huge amounts of liquidity to run an insurer, and reinsurer, that big.

[revhappy]

How long has Buffett had significant amounts of cash at Berkshire? Wouldn't he have done much better putting that in an broad stock market ETF?

In a market crash, you can have 10 years worth of gains evaporate in a matter of months. So your question makes sense now. But remember at the depth of 2008 crash, 10 years worth of gains had evaporated just like that. We had a taste of what can happen in December.

So buy and hold and stay the course can be ahead for a very long time, but unless you encash it you are still in the game.

[knpstr]

Currently Warren has a $112 billion cash position in Berkshire. He constantly looks for places to invest but has recently written:

Prices are sky-high for businesses possessing decent long-term prospects.

He only invests in companies selling at a significant discount to what he calls "intrinsic value." The fact that he can find no such good long term investments in the current market is interesting. Cash levels build as new dollars pour into Berkshire but it purchases no new equity. Apparently he is waiting either for equity market prices to decline significantly (bear market?) or for better prospects for corporate long term profit stability and growth before investing new dollars. He is even reducing the multibillion level of annual buybacks of Berkshire shares which suggests that Berkshire is his view is not the bargain it was last year when buybacks were higher. It is likely that in Buffett's view even Berkshire is close to its intrinsic value at present. Of course, like everyone else, he can be wrong but this is not exactly a ringing endorsement for the near term future of equity markets.

Garland Whizzer

Just wanted to add one thing to your list:
Another "requirement" Buffett has is that he would prefer to not have a hostile takeover. So he needs to find a business selling under intrinsic value AND is happy to be bought out by Berkshire.

He also keeps $20B as his "emergency fund". He says he would prefer Berkshire to never go below $20B in "cash" (short term bonds). So he has roughly $92B ready to be invested.

I wouldn't say he is purchasing "no new equity". They are buying equities every quarter. They just don't invest the full amount of the cash that comes in.

[knpstr]

Why is Buffett still considered relevant? He has lost to index investing since 2004.

And how much of his returns to begin with came from "beating the market" rather than operational performance of the companies Berkshire owns?

Just in case you didn't realize it:
For all long-term investing people that "beat the market" it comes back to the operational performance of the companies they invested in. Regardless of if they are fully owned subsidiaries. It is the "point" of investing -- to invest in superior companies.

There are ways of arbitraging and various special situations that can result in significant gains and not necessarily rely operating performance. Which is what Buffett did often in his early years.

[alex_686]

I don’t see anybody accuse Buffet of timing the market. What percentage is his cash bucket to his portfolio.

I do - and i will point to Buffet’s words and actions as support.

[knpstr]

I don’t see anybody accuse Buffet of timing the market. What percentage is his cash bucket to his portfolio.

I do - and i will point to Buffet’s words and actions as support.

One could argue that it is indirectly market timing. It is definitely not directly market timing.

For example: If you can't find "any good deals" that means likely the market is high, so he isn't investing. However, he isn't looking simply at CAPE and saying "forget it, I'm not even going to look at any companies because the market is too high!"

Same outcome, but a very different method.

[delrinson]

Buffett mentioned this morning that there was the possibility of a large acquisition in Q4 that didn't pan out...that largely explains why he sat on the cash and didn't buy more equities or do significant buybacks. He continues to think the US market is attractive as long as interest rates stay where they are.

[Valuethinker]

Currently Warren has a $112 billion cash position in Berkshire. He constantly looks for places to invest but has recently written:

Prices are sky-high for businesses possessing decent long-term prospects.

He only invests in companies selling at a significant discount to what he calls "intrinsic value." The fact that he can find no such good long term investments in the current market is interesting. Cash levels build as new dollars pour into Berkshire but it purchases no new equity. Apparently he is waiting either for equity market prices to decline significantly (bear market?) or for better prospects for corporate long term profit stability and growth before investing new dollars. He is even reducing the multibillion level of annual buybacks of Berkshire shares which suggests that Berkshire is his view is not the bargain it was last year when buybacks were higher. It is likely that in Buffett's view even Berkshire is close to its intrinsic value at present. Of course, like everyone else, he can be wrong but this is not exactly a ringing endorsement for the near term future of equity markets.

Garland Whizzer

Just wanted to add one thing to your list:
Another "requirement" Buffett has is that he would prefer to not have a hostile takeover. So he needs to find a business selling under intrinsic value AND is happy to be bought out by Berkshire.

He also keeps $20B as his "emergency fund". He says he would prefer Berkshire to never go below $20B in "cash" (short term bonds). So he has roughly $92B ready to be invested.

I wouldn't say he is purchasing "no new equity". They are buying equities every quarter. They just don't invest the full amount of the cash that comes in.

He has a choice:

- deploy capital by buying whole companies - private or public. Hence Precision Castparts - an aerospace components make acquired for $20 bn from memory

Buffett presents himself as an alternative to Private Equity - not 3 year holding period and flip, but a long term owner of a company, leaving existing management in place.

- increased capital expenditure in his existing companies - Mid American holdings for example (utilities). Railways. Netjets. He now targets companies which, post acquisition, have significant requirements for further capital and higher returns than his cost of capital.

His scale is now so large that he can really only target minority shareholdings in the largest of companies. His big miss was Microsoft, which has behaved as an excellent Buffett "margin of safety" value stock down the years - perhaps he felt conflicted due to his friendship with Bill Gates.

Google Microsoft Apple (perhaps Facebook) have all conformed to his theories of a defencible moat around the business. Amazon that would be less clear.

[dkturner]

Currently Warren has a $112 billion cash position in Berkshire. He constantly looks for places to invest but has recently written:

Prices are sky-high for businesses possessing decent long-term prospects.

He only invests in companies selling at a significant discount to what he calls "intrinsic value." The fact that he can find no such good long term investments in the current market is interesting. Cash levels build as new dollars pour into Berkshire but it purchases no new equity. Apparently he is waiting either for equity market prices to decline significantly (bear market?) or for better prospects for corporate long term profit stability and growth before investing new dollars. He is even reducing the multibillion level of annual buybacks of Berkshire shares which suggests that Berkshire is his view is not the bargain it was last year when buybacks were higher. It is likely that in Buffett's view even Berkshire is close to its intrinsic value at present. Of course, like everyone else, he can be wrong but this is not exactly a ringing endorsement for the near term future of equity markets.

Garland Whizzer

I was unaware that Berkshire Hathaway had actually been repurchasing it’s common stock. When I checked it’s financials this morning they show 2.49 billion (class B equivalent shares) outstanding for each of the last 5 years. Does anyone know if this is correct?

[aristotelian]

I don’t see anybody accuse Buffet of timing the market. What percentage is his cash bucket to his portfolio.

Buffet is most definitely a market timer. He believes in "intrinsic value" and thinks he can outsmart the market by buying when others are panicking. He made a fortune buying Goldman Sachs during the financial crisis. His remarks about a coming megacrisis suggest he is waiting for something similar. The question is whether at some point staying out of market for so long will cost him long term.

The fact that he is staying out of market with so much cash does not really tell me anything about "valuations" that would make me rethink a Boglehead approach. Having been fully invested, even if the market drops, I have a lot more money to lose than I would have with a big cash position out of market over time.

That said, I do own a few shares of Berkshire. That way, if I want to time the market, I will let Buffet do it for me.

[knpstr]

Buffett mentioned today in an interview that "he'd buy the S&P 500 in a second" over many other investment opportunities, specifically against bonds.

He also stated he has "other things in mind" that requires him to build up a lot of cash "sometimes they work out sometimes they don't". That he'd like to buy companies outright over stocks. He also coyly mentioned that there was "1 very large deal" in particular that almost got done.

This is the reason their cash position is so large. Their desire to buy huge companies outright.

He said depending on interest rates, the market today could be seen as cheap 30 years from now -- meaning if rates stay this low. Rates are still historically low so asset valuations remain historically high.

He even mentioned: "We (the US) may be in a new world, a world like Japan entered in 1990", in his interview. He said if we are in fact in this new world "we will look back and say stocks were very cheap".

[alex_686]

However, he isn't looking simply at CAPE and saying "forget it, I'm not even going to look at any companies because the market is too high!"

I am going to point out that CAPE can't be used for market timing, so this is not the best example. I would point to all of the other posts on intrinsic value. A better argument is that he does bottom up analysis rather than top down. That is, starting with individual company's balance sheet rather than macro economic indicators.

[DrGoogle2017]

How long has Buffett had significant amounts of cash at Berkshire? Wouldn't he have done much better putting that in an broad stock market ETF?

In a market crash, you can have 10 years worth of gains evaporate in a matter of months. So your question makes sense now. But remember at the depth of 2008 crash, 10 years worth of gains had evaporated just like that. We had a taste of what can happen in December.

So buy and hold and stay the course can be ahead for a very long time, but unless you encash it you are still in the game.

Thanks for this comment. I was in cash in 2008, so I wasn’t sure how much I missed. The evaporated gains. I didn’t realize it’s 10 years.

[TN_Boy]

Buffett mentioned today in an interview that "he'd buy the S&P 500 in a second" over many other investment opportunities, specifically against bonds.

He also stated he has "other things in mind" that requires him to build up a lot of cash "sometimes they work out sometimes they don't". That he'd like to buy companies outright over stocks. He also coyly mentioned that there was "1 very large deal" in particular that almost got done.

This is the reason their cash position is so large. Their desire to buy huge companies outright.

He said depending on interest rates, the market today could be seen as cheap 30 years from now -- meaning if rates stay this low. Rates are still historically low so asset valuations remain historically high.

He even mentioned: "We (the US) may be in a new world, a world like Japan entered in 1990", in his interview. He said if we are in fact in this new world "we will look back and say stocks were very cheap".

Yes, I still don't understand why people think Berkshire Hathway's cash position, which is used for many things, including potentially buying large companies, tells us much about what individual investors should do -- even if you believe Buffett really is smarter than everybody else.

It's a long way from "Berkshire is holding lots of cash" to "I should reduce my stock allocation." Could someone point to where Mr Buffett implies such a connection in any way?

[Grt2bOutdoors]

Buffett mentioned today in an interview that "he'd buy the S&P 500 in a second" over many other investment opportunities, specifically against bonds.

He also stated he has "other things in mind" that requires him to build up a lot of cash "sometimes they work out sometimes they don't". That he'd like to buy companies outright over stocks. He also coyly mentioned that there was "1 very large deal" in particular that almost got done.

This is the reason their cash position is so large. Their desire to buy huge companies outright.

He said depending on interest rates, the market today could be seen as cheap 30 years from now -- meaning if rates stay this low. Rates are still historically low so asset valuations remain historically high.

He even mentioned: "We (the US) may be in a new world, a world like Japan entered in 1990", in his interview. He said if we are in fact in this new world "we will look back and say stocks were very cheap".

Yes, I still don't understand why people think Berkshire Hathway's cash position, which is used for many things, including potentially buying large companies, tells us much about what individual investors should do -- even if you believe Buffett really is smarter than everybody else.

It's a long way from "Berkshire is holding lots of cash" to "I should reduce my stock allocation." Could someone point to where Mr Buffett implies such a connection in any way?

Buffett said long ago, he believes the perfect allocation is 90% S&P 500/10% Treasuries.

[knpstr]

Yes, I still don't understand why people think Berkshire Hathway's cash position, which is used for many things, including potentially buying large companies, tells us much about what individual investors should do -- even if you believe Buffett really is smarter than everybody else.

It's a long way from "Berkshire is holding lots of cash" to "I should reduce my stock allocation." Could someone point to where Mr Buffett implies such a connection in any way?

Buffett said long ago, he believes the perfect allocation is 90% S&P 500/10% Treasuries.

Yes, Buffett has suggested that the "average or passive" investor should always be fully invested and at 90/10 - S&P500 index/Short term treasuries. Set it and forget it. Don't dance in and out.

[knpstr]

Still, I have to say this isn't anything like 1999 or early 2000 when forward P/E's got to be about 32 and trailing P/E's about 45.

Trailing P/E of 45 and at a time when interest rates were also around 5-6%.

Rates are still just 2.4% today. Of course, lower interest rates "justify" higher valuations.

[abuss368]

Many investors try to follow Warren Buffett's investment selections and style and simply can't. He has access to investments that most investors do not.

I suspect if he does not start to put the cash pile to work the calls of paying a dividend may increase.

[abuss368]

The most interesting thing about his cash position, IMO, was that he didn't add to Apple at much lower levels than he was adding in the prior quarter.Either he thinks the stock is less attractive now or he is more averse to concentration than he pretends to be.

I thought about this as well. Buffett is a stock picker and market timer in some respects. With the large decrease in Apple he did not back up the truck and add. In my opinion that says Mr. Buffett feels his cash is better allocated elsewhere.

[rich126]

The most interesting thing about his cash position, IMO, was that he didn't add to Apple at much lower levels than he was adding in the prior quarter.Either he thinks the stock is less attractive now or he is more averse to concentration than he pretends to be.

I thought about this as well. Buffett is a stock picker and market timer in some respects. With the large decrease in Apple he did not back up the truck and add. In my opinion that says Mr. Buffett feels his cash is better allocated elsewhere.

The Apple purchased I thought was questionable (Apple was near its high, the market was high, etc.). I could see buying Microsoft stock although with Gates on the board (I think?) maybe that isn't allowed.

His cash, while too high, does allow him to obtain certain investments and make above going rates on some financing. And he made out well during the 2008 market issues.

No one is perfect. Whether BRK is too big, etc. is tough to say. And you can always cherry pick dates where it under or over performs.

[abuss368]

I would be curious how many Bogleheads are investors in Berkshire stock. That is direct owner of shares and not through mutual funds.

[knpstr]

The most interesting thing about his cash position, IMO, was that he didn't add to Apple at much lower levels than he was adding in the prior quarter.Either he thinks the stock is less attractive now or he is more averse to concentration than he pretends to be.

I thought about this as well. Buffett is a stock picker and market timer in some respects. With the large decrease in Apple he did not back up the truck and add. In my opinion that says Mr. Buffett feels his cash is better allocated elsewhere.

This morning on CNBC he stated he almost did a "very large deal" end of last year. So if that went through his cash position wouldn't be so large.

[abuss368]

This morning on CNBC he stated he almost did a "very large deal" end of last year. So if that went through his cash position wouldn't be so large.

I know. I am watching that interview now online. He would love to buy a business but in 2019 will keep investing in stocks.

[abuss368]

The most interesting thing about his cash position, IMO, was that he didn't add to Apple at much lower levels than he was adding in the prior quarter.Either he thinks the stock is less attractive now or he is more averse to concentration than he pretends to be.

I thought about this as well. Buffett is a stock picker and market timer in some respects. With the large decrease in Apple he did not back up the truck and add. In my opinion that says Mr. Buffett feels his cash is better allocated elsewhere.

This morning on CNBC he stated he almost did a "very large deal" end of last year. So if that went through his cash position wouldn't be so large.

But I do wonder what business that could have been!

[knpstr]

But I do wonder what business that could have been!

He started stuttering and hmm/hawing his words. So he was trying to keep from saying too much.

He really stated that they want to make a big outright purchase (which must pass certain filters), not put all if it stocks. I don't think anyone should read anymore into than that.

[alex_686]

The Apple purchased I thought was questionable (Apple was near its high, the market was high, etc.). I could see buying Microsoft stock although with Gates on the board (I think?) maybe that isn't allowed.

It is allowed. Gates should not be relaying any inside information about Microsoft nor as a board member should he be directing any trades. The lawyers would need to do some checking and vetting before any purchase to make sure Berkshire remained on the right side of the law.

[abuss368]

But I do wonder what business that could have been!

He started stuttering and hmm/hawing his words. So he was trying to keep from saying too much.

He really stated that they want to make a big outright purchase (which must pass certain filters), not put all if it stocks. I don't think anyone should read anymore into than that.

I did see that. My thoughts were not to get in any trouble! He did say no the follow up on if the deal is possible but then said maybe. That may be more of a strategy move than regulatory. Always have enjoyed his interviews.

[AllieTB1323]

Anyone holding VTSAX, ITOT or any other U.S. Total Market Index fund is holding a non-trivial position in BRK. His yearly letters are an entertaining exercise in Sacred Cow slaying, below is an excerpt from this year's letter.

"Over the years, Charlie and I have seen all sorts of bad corporate behavior, both accounting and operational, induced by the desire of management to meet Wall Street expectations. What starts as an “innocent” fudge in order to not disappoint “the Street” – say, trade-loading at quarter-end, turning a blind eye to rising insurance losses, or drawing down a “cookie-jar” reserve – can become the first step toward full-fledged fraud. Playing with the numbers “just this once” may well be the CEO’s intent; it’s seldom the end result. And if it’s okay for the boss to cheat a little, it’s easy for subordinates to rationalize similar behavior."

[TN_Boy]

Yes, I still don't understand why people think Berkshire Hathway's cash position, which is used for many things, including potentially buying large companies, tells us much about what individual investors should do -- even if you believe Buffett really is smarter than everybody else.

It's a long way from "Berkshire is holding lots of cash" to "I should reduce my stock allocation." Could someone point to where Mr Buffett implies such a connection in any way?

Buffett said long ago, he believes the perfect allocation is 90% S&P 500/10% Treasuries.

Yes, Buffett has suggested that the "average or passive" investor should always be fully invested and at 90/10 - S&P500 index/Short term treasuries. Set it and forget it. Don't dance in and out.

Could you point me to where he said the average investor should always be fully invested, 90/10 per the above. Or that he said 90/10 was "perfect."

Because I do not think that is what he said. I looked at the 2013 letter where he stated his wife's trustee should allocate the money 90/10. He clearly advocates index investing, and seems to discourage market timing in the associated text.

But I do not see where he says the average investor should be 90/10. He said his spouse should be. His spouse will almost certainly not be an "average investor." I'm taking a wild guess that just the 10% she'll have in bonds will greatly exceed the total net worth of most investors.

[TN_Boy]

Anyone holding VTSAX, ITOT or any other U.S. Total Market Index fund is holding a non-trivial position in BRK. His yearly letters are an entertaining exercise in Sacred Cow slaying, below is an excerpt from this year's letter.

"Over the years, Charlie and I have seen all sorts of bad corporate behavior, both accounting and operational, induced by the desire of management to meet Wall Street expectations. What starts as an “innocent” fudge in order to not disappoint “the Street” – say, trade-loading at quarter-end, turning a blind eye to rising insurance losses, or drawing down a “cookie-jar” reserve – can become the first step toward full-fledged fraud. Playing with the numbers “just this once” may well be the CEO’s intent; it’s seldom the end result. And if it’s okay for the boss to cheat a little, it’s easy for subordinates to rationalize similar behavior."

Did he say anything about Berkshire holding Wells Fargo .......

[MotoTrojan]

Why do we keep getting different PE numbers? Someone up thread mentioned forward valuations are cheap at 16, however I have seen other analysts mention current valuations are at levels seen during dot com bubble. So which is which?

I like this article and kind of agree with it:

https://www.marketwatch.com/story/the-a ... 2018-10-01

Forward/trailing P/E looks good, it’s CAPE (10 year inflation adjusted) that’s at a high.

[knpstr]

delete double post

[knpstr]

Yes, I still don't understand why people think Berkshire Hathway's cash position, which is used for many things, including potentially buying large companies, tells us much about what individual investors should do -- even if you believe Buffett really is smarter than everybody else.

It's a long way from "Berkshire is holding lots of cash" to "I should reduce my stock allocation." Could someone point to where Mr Buffett implies such a connection in any way?

Buffett said long ago, he believes the perfect allocation is 90% S&P 500/10% Treasuries.

Yes, Buffett has suggested that the "average or passive" investor should always be fully invested and at 90/10 - S&P500 index/Short term treasuries. Set it and forget it. Don't dance in and out.

Could you point me to where he said the average investor should always be fully invested, 90/10 per the above. Or that he said 90/10 was "perfect."

Because I do not think that is what he said. I looked at the 2013 letter where he stated his wife's trustee should allocate the money 90/10. He clearly advocates index investing, and seems to discourage market timing in the associated text.

But I do not see where he says the average investor should be 90/10. He said his spouse should be. His spouse will almost certainly not be an "average investor." I'm taking a wild guess that just the 10% she'll have in bonds will greatly exceed the total net worth of most investors.

He never said it is "perfect" (nothing is perfect) but he has mentioned and hinted that this portfolio would suite most people well.

In a CNBC Squawk Box Transcipt:
"To which Buffett responded: “Well, I didn’t lay out my whole will. . . . I did explain, because I laid out what I thought the average person who is not an expert on stocks should do. And my widow will not be an expert on stocks. And I wanna be sure she gets a decent result. She isn’t gonna get a sensational result, you know? And since all my Berkshire shares are going to philanthropy, the question becomes what does she do with the cash that’s left to her? Part of it goes outright, part of it goes to a trustee. But I’ve told the trustee to put 90% of it in an S&P 500 index fund and 10% in short-term governments. And the reason for the 10% in short-term governments is that if there’s a terrible period in the market and she’s withdrawing 3% or 4% a year you take it out of that instead of selling stocks at the wrong time. She’ll do fine with that. And anybody will do fine with that. It’s low-cost, it’s in a bunch of wonderful businesses, and it takes care of itself.”"

all emphasis mine

As far as being fully invested he has another quote which I couldn't find but here is one that is tangential in nature:
""Since the basic game is so favorable, Charlie and I believe it's a terrible mistake to try to dance in and out of it based upon the turn of tarot cards, the predictions of "experts," or the ebb and flow of business activity. The risks of being out of the game are huge compared to the risks of being in it.""

[bgf]

berkshire outperforms the market over decades. people criticize. berkshire has over $100b in cash and do posters discuss how much of a financial rock it is? nope. berkshire has dozens of diversified wholly owned operating companies. berkshire has large investments in dozens of publicly traded equities. berkshire has one of the largest and most profitable insurance operations in the world. and to top it off, over $100 BILLION in cash.

what do we get? criticism for his cash position and platitudes that he should just put it into and sp500 index... we got comments that investing in berkshire would be crazy because of too much uncompensated "single company risk."

is warren buffett smarter than you? yes, he is. is warren buffett a better investor than you? yes, he is. has warren buffett amassed more wealth than you could in many lifetimes? yes, he has.

i think you should just buy some shares, sit back, and enjoy watching your wealth grow.

[StandingRock]

Warren Buffet doesn't do what we do. I wouldn't worry about it.

[linenfort]

i think you should just buy some shares, sit back, and enjoy watching your wealth grow.

done!

[inbox788]

I don’t see anybody accuse Buffet of timing the market. What percentage is his cash bucket to his portfolio.

You can call it timing the market and it is, but Berkshire Hathaway has a positive cash flow problem (a good problem to have). The company generates over $20M in new cash each year that needs to be deployed. The choices are cash, private equity, public companies, or stock buybacks. The rumor according to CNBC is WB was going to make a big private deal and was saving the cash for that, but it fell through (I expect more stock buybacks now).

https://www.cnbc.com/2019/02/25/buffett ... apart.html

Given the avoidance of tech (and recent pulling out of Oracle), I don't think it's a pre-IPO unicorn. Taking over Kraft seems to have been denied, so given his penchant for sweets, I suspect it was Mars! If he wasn't looking at $50B+ companies, he wouldn't need to stockpile. For under $10B companies, he can use quarterly Berkshire Hathaway earnings and some pocket change.

https://www.forbes.com/largest-private-companies/list/

[TN_Boy]

Yes, I still don't understand why people think Berkshire Hathway's cash position, which is used for many things, including potentially buying large companies, tells us much about what individual investors should do -- even if you believe Buffett really is smarter than everybody else.

It's a long way from "Berkshire is holding lots of cash" to "I should reduce my stock allocation." Could someone point to where Mr Buffett implies such a connection in any way?

Buffett said long ago, he believes the perfect allocation is 90% S&P 500/10% Treasuries.

Yes, Buffett has suggested that the "average or passive" investor should always be fully invested and at 90/10 - S&P500 index/Short term treasuries. Set it and forget it. Don't dance in and out.

Could you point me to where he said the average investor should always be fully invested, 90/10 per the above. Or that he said 90/10 was "perfect."

Because I do not think that is what he said. I looked at the 2013 letter where he stated his wife's trustee should allocate the money 90/10. He clearly advocates index investing, and seems to discourage market timing in the associated text.

But I do not see where he says the average investor should be 90/10. He said his spouse should be. His spouse will almost certainly not be an "average investor." I'm taking a wild guess that just the 10% she'll have in bonds will greatly exceed the total net worth of most investors.

He never said it is "perfect" (nothing is perfect) but he has mentioned and hinted that this portfolio would suite most people well.

In a CNBC Squawk Box Transcipt:
"To which Buffett responded: “Well, I didn’t lay out my whole will. . . . I did explain, because I laid out what I thought the average person who is not an expert on stocks should do. And my widow will not be an expert on stocks. And I wanna be sure she gets a decent result. She isn’t gonna get a sensational result, you know? And since all my Berkshire shares are going to philanthropy, the question becomes what does she do with the cash that’s left to her? Part of it goes outright, part of it goes to a trustee. But I’ve told the trustee to put 90% of it in an S&P 500 index fund and 10% in short-term governments. And the reason for the 10% in short-term governments is that if there’s a terrible period in the market and she’s withdrawing 3% or 4% a year you take it out of that instead of selling stocks at the wrong time. She’ll do fine with that. And anybody will do fine with that. It’s low-cost, it’s in a bunch of wonderful businesses, and it takes care of itself.”"

all emphasis mine

As far as being fully invested he has another quote which I couldn't find but here is one that is tangential in nature:
""Since the basic game is so favorable, Charlie and I believe it's a terrible mistake to try to dance in and out of it based upon the turn of tarot cards, the predictions of "experts," or the ebb and flow of business activity. The risks of being out of the game are huge compared to the risks of being in it.""

Thanks, I hadn't seen the CNBC transcript.

That said, he appears to have slipped in some additional information. She will get some amount of cash directly, plus other cash which will be managed by a trustee and the trustee will put that cash into a 90/10 asset allocation. It's quite possible most of the inheritance will be managed by the trustee, in the 90/10 stock/bond split but her overall asset allocation will be stocks + treasuries + cash and we don't actually know the percentages of each.

And I'm sure Warren is smarter than I am, but I know I have far less assets than the widowed Mrs Buffet will have, and would not be comfortable with a 90/10 allocation near retirement (note that some are ... more power to them). 90/10 can't be optimal for everybody.