Berkshire Hathaway's mountain of cash

d712

Thrugelmir wrote: »

Unlikely that BH sits on a $100bn of cash pile that's available to invest. More likely a far amount of that will consist of cash equivalents i.e. US Treasuries. With major insurance interests within the group there'll be regulatory solvency ratios to be adhered to.

Thanks

I doubt he has that much in cash but whatever he has it must be in a form that he can quickly access so he can use it to invest.

I don't know anything about regulatory solvency ratios. What effect would they have on buying a major insurance company like State Farm?

d712

Prism wrote: »

Never heard of them

Berkshire Hathaway owns GEICO, the second largest auto insurer in the America.

Second to State Farm.

bowlhead99

d712 wrote: »

So there are no regulations that would prevent him from investing in an index fund and he could do so if he wanted?

Could he lend the money as I mentioned in my original post?

He loves insurance companies, how about buying State Farm?

Perhaps you should be putting these incessant questions to Mr Buffett himself rather than expecting us to answer on his behalf.

However, to humour you:

1) the company he directs can invest in whatever it wants, as long as his insurance business has adequate liquid resources to meet its obligations. He could set up his own index fund if he likes, or invest in a product from some other provider after negotiating heavily on the fee. However, his company has never been about investing all its spare money in an index of companies, allocating the most money to the biggest companies. The shareholders who own BH alongside Mr Buffett would prefer that if he is not going to invest the money opportunistically and selectively in good businesses going forward, he return the cash to them.

Aside from the fact that some of the cash or liquid assets on his consolidated balance sheet is needed for regulatory capital requirements in the insurance businesses - buying a hundred billion worth of indexes because he doesn't have any other good ideas for the money is something that would cause investors to lose faith in the company and sell out of their shares, crashing the share price.

2) He does invest in loans to company or governments and has done some very high profile debt or preferred equity investments from time to time. Bonds, convertibles, preference shares etc are all things that are fair game for any insurance company or conglomerate to buy. Yields for investing in safe stuff are low at the moment, and any loan comes with credit risk, inflation risk, and the opportunity cost that once it is lent out it can't be used for something more lucrative. The fact that he is keeping 'dry powder' for future investment opportunities, rather than lending it out willy nilly, implies that he and his team have assessed current opportunities and decided that there will be better opportunities later.

3) He is heavily invested into a US insurance business. Why would he need another one. Would there be a lot of synergies in mashing the two together? A fundamental question is would the current owners of State Farm sell out for a price that makes the investment have as good prospects as the other things he holds? There are plenty of things you could buy with $100bn but they are not all good value. I can't really be bothered to give you good reasons why State Farm should not be bought as it is a slippery slope - are you going to to haul my analysis over the coals and then, dissatisfied, expect me to go one-by-one through the other few thousand businesses around the world that could be bought for $100bn or less and expect me to analyse them too? I don't have time.

The short answer to why is he sitting on cash, is that he thinks it can be used for something decent in future or potentially returned to investors, although the latter perhaps sends a negative message about the prospects of the US economy which would be negative for perceptions of the value of his own business given it has not historically returned cash. However, with thousands of shareholders, employees, market commentators, analysts, bloggers, journalists and high profile investor friends all coming up with ideas, it's unlikely he is still sitting on the money by accident.

But feel free to drop him an email saying "Hey WB, just in case, did you think of lending the money out, putting it into a fund, or buying another insurance company?"

dividendhero

Buffet could break habit of a lifetime and declare a divi :money:

d712

bowlhead99 wrote: »

Perhaps you should be putting these incessant questions to Mr Buffett himself rather than expecting us to answer on his behalf.

But feel free to drop him an email saying "Hey WB, just in case, did you think of lending the money out, putting it into a fund, or buying another insurance company?"

I would say that Warren Buffett is unlikely to respond to an email from anyone on this forum, wouldn't you? So it looks like I'll have to settle for posting on an investment forum.

Perhaps you should look up look up 'incessant' in the dictionary because 5 questions certainly does not meet the definition.

But, that aside, thank you for taking the time to humour me.

d712

dividendhero wrote: »

Buffet could break habit of a lifetime and declare a divi :money:

Very true but very unlikely.

bowlhead99

d712 wrote: »

I would say that Warren Buffett is unlikely to respond to an email from anyone on this forum, wouldn't you?

Yes, agreed.

So it looks like I'll have to settle for posting on an investment forum.

Do you really think the exact specific answer to "why doesn't he try and..." (sic) is going to be known by a person who isn't him?

You can get the more speculative and vague answers from the various articles you'll find online. But there's little practical point in trying to establish why exactly he doesn't do all the different things, because you don't have a say in what he does and you don't have your own several hundred billion dollar company with a cash pile to disburse.

Perhaps you should look up look up 'incessant' in the dictionary because 5 questions certainly does not meet the definition.

I just found your unflagging curiousity about some flawed premises to be a bit overbearing. Maybe 'persistent', 'unrelenting' would be more appropriate, which are synonyms for someone banging on about something without pause or interruption.

d712: "Why doesn't he do [laundry list of options]"
audience: "partial response"

d712: "thanks but what about all the other options"
audience: "comment about why spending the money on good value companies is difficult"

d712: "ok that doesn't help"
audience: "comments that the index idea is taken out of context and why using an index is not in line with his investment thesis"

d712: "I don't like your answer, doing what I say is an option"
d712: "So he can buy an index fund, and what about all these other options I asked about?"
audience: "point by point answer summarised as 'there is no reason for him to do these things' "

audience: "also, the money is not all spare, regulatory capital should be considered"
d712 "I don't know anything about that, teach me"

audience "I don't know who State Farm is"
d712 "It's an insurance company why doesn't he buy it!"

To me, this seems like persistent unrelenting questions until someone gives you a full analysis of your original flawed laundry list of options by speculating why he would not do them or pointing out that he is already doing them. Thus my long post to try to help.

But, that aside, thank you for taking the time to humour me.

Happy to help!

https://www.youtube.com/watch?v=IR8Um_vZ3oM&t=418

d712

bowlhead99 wrote: »

Yes, agreed.Do you really think the exact specific answer to "why doesn't he try and..." (sic) is going to be known by a person who isn't him?

You can get the more speculative and vague answers from the various articles you'll find online. But there's little practical point in trying to establish why exactly he doesn't do all the different things, because you don't have a say in what he does and you don't have your own several hundred billion dollar company with a cash pile to disburse.
I just found your unflagging curiousity about some flawed premises to be a bit overbearing. Maybe 'persistent', 'unrelenting' would be more appropriate, which are synonyms for someone banging on about something without pause or interruption.

d712: "Why doesn't he do [laundry list of options]"
audience: "partial response"

d712: "thanks but what about all the other options"
audience: "comment about why spending the money on good value companies is difficult"

d712: "ok that doesn't help"
audience: "comments that the index idea is taken out of context and why using an index is not in line with his investment thesis"

d712: "I don't like your answer, doing what I say is an option"
d712: "So he can buy an index fund, and what about all these other options I asked about?"
audience: "point by point answer summarised as 'there is no reason for him to do these things' "

audience: "also, the money is not all spare, regulatory capital should be considered"
d712 "I don't know anything about that, teach me"

audience "I don't know who State Farm is"
d712 "It's an insurance company why doesn't he buy it!"

To me, this seems like persistent unrelenting questions until someone gives you a full analysis of your original flawed laundry list of options by speculating why he would not do them or pointing out that he is already doing them. Thus my long post to try to help.

Happy to help!

https://www.youtube.com/watch?v=IR8Um_vZ3oM&t=418

It's Saturday evening. You seriously need to get a life.

darkidoe

d712 wrote: »

It's Saturday evening. You seriously need to get a life.

Hey. This is his life! It's a Bowlhead Classic! :rotfl:

bowlhead99

d712 wrote: »

It's Saturday evening. You seriously need to get a life.

Thanks for the advice, I'll take it to heart.

However, if Saturdays are somehow sacred, it is a bit rich for you to be posting at lunchtime, 4.20, 6.15, 7pm to 8pm, and 10.30pm, to figure out how, purely hypothetically, an owner of a multibillion conglomerate ought to best deploy his investors money, and then tell other people off for not making the best use of their lives?

Do cheer up, it's the weekend :beer: