Wednesday, September 7, 2016

"What Warren Buffett Likes About Cash"

From Barron's Read This, Spike That:

Here’s a case for an inert asset. And what will self-driving cars mean for auto stocks?
If you’re like many investors, you view the cash portion of your investment portfolio as money to be quickly put to work. 

By that thinking, a large cash position in percentage terms is taken as a sign that either you or your financial advisor has been asleep at the switch. 

But a thoughtful piece by financial blogger Jesse Felder might make you think a little differently about the money market portion of your portfolio. 

As Felder sees it, cash has now become the “most hated asset class on the planet.” 

Felder, a former Wall Streeter and hedge-fund manager who now trades for himself, writes that investors are willing to accept negative returns on many asset classes right now rather than hold cash. “This is totally irrational,” he adds. “The most obvious example of this is negative interest rates on many bonds around the world.”

But there’s also the rush into dividend stocks, he argues, even though those stocks may be trading at inflated values. 

“All of this is indicative of just how desperate investors have become to abandon cash for anything with any sort of perceived yield,” Felder writes. 

Well, not all investors. Felder points out that Warren Buffett is a big fan of holding on to large piles of cash at Berkshire Hathaway (ticker: BRKA, BRKB) that can be put to work at a moment’s notice. In the past two years, Berkshire at times has had more than $70 billion in cash on Berkshire’s balance sheet. 

Felder quotes Buffett biographer Alice Schroeder, who has said of Buffett’s yen for cash: “He thinks of cash differently than conventional investors. He thinks of cash as a call option with no expiration date, an option on every asset class, with no strike price.”...MORE