Investors generally consider cash to be a non-productive asset, one which actually loses money over time due to inflation. While this happens to be a very true statement, one echoed by iconic investors such as Warren Buffett, one thing many of the world’s best investors continue to do is hoard cash. In fact, Mr. Buffett is now sitting on a cash pile of nearly $100 billion, attributable to the inability of the Oracle of Omaha to find deals that suit his investment criteria in today’s relatively pricey market.
Mr. Buffett is still making deals, and picking and choosing his stocks very selectively, however the build up in Berkshire Hathaway Inc.’s (NYSE:BRK.A) cash position is mostly due to the fact that the company takes in an enormous amount of dividend income each and every quarter. Assuming the company’s management team cannot justify investing the funds, the position that Berkshire has taken is one of patience.
The argument that cash is the ammunition which allows the best “sniper” investors such as Warren Buffett swoop in and make deals that not too many folks can make (hey, $100 billion gives the man some latitiude) is a good one. What should be noted here is that the deals Mr. Buffett is often able to make are not ones available to the average investor. Over time, cash invested is better than cash sitting in an account, however it is also true that building up a cash position in times of relatively high valuations is a smart thing to do.
Invest wisely, my friends