Many investors ask the question: how much cash is necessary (or prudent) to be kept in a portfolio at any given time? As cash is a non-productive asset and one which generally is kept as a hedge to the broader market, providing flexibility in times of market crashes, one would not expect that many large money managers would recommend keeping a significant amount of cash on hand at any given time.
That said, some of the largest and most successful investors of all time (such as Warren Buffett) have repeatedly pointed to their large cash hoards as one of the primary tools used to take advantage of market pricing discrepancies. As Warren Buffett has famously noted, "Be greedy when others are fearful and fearful when others are greedy." One good way to act on that greed, of course, is to have large amounts of cash on hand which can be used to invest in businesses which others happen to be fearful about.
An example of this Buffett-strategy at work are abundant, however, investors can look to Buffett buying Apple shares at sub-$100 last year or buying airlines at ridiculously low price-to-earnings multiples over the past years as valuable plays which were the result of holding billions of dollars of cash on the sidelines and waiting for such an opportunity to manifest itself.
In general, Warren Buffett tends to keep a significantly higher-than-normal amount of cash available at any given time to make acquisitions most investors will never dream of making. The company’s current cash position sits around $90 billion, net of continued acquisitions (and the company is making a lot of them).
Invest wisely, my friends.
