# Berkshire rolling in the cash.............



## sags (May 15, 2010)

Old timers Warren Buffet and Charlie Munger still have the Midas touch............55 Billion US dollars worth of cash on the sidelines.

For the last quarter, Berkshire reported a 41% increase in profit.

The fund is earning 1 Billion dollars a month in profit.

http://business.financialpost.com/2...shire-hathaways-cash-hoard-tops-us50-billion/

Interesting looking at the long term chart for Berkshire A shares........

March 17, 1980................$290

June 1, 1990.................$7,100

August 5, 2014...........$192,499


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## My Own Advisor (Sep 24, 2012)

Geez.....


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## sags (May 15, 2010)

Yup..........and to put it into perspective a little........in 1980 we put $7,000 down payment on a split level home.

We should have continued renting and bought 25 Berkshire shares instead ...........LOL...........


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## SkyFall (Jun 19, 2012)

as a joke I was telling my friend he should have bought Berkshire's shares instead of his condo


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## Pluto (Sep 12, 2013)

And one of the clues to their midas touch is although they both hate cash, they are not in a big hurry to throw it at the stock market right now. Presumably they don't see much appreciation potential.


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## lightcycle (Mar 24, 2012)

Proof positive that Buffett is a time traveler from the future.


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## Pluto (Sep 12, 2013)

lightcycle said:


> Proof positive that Buffett is a time traveler from the future.


Huh?


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## lightcycle (Mar 24, 2012)

Pluto said:


> Huh?


Proof positive that Buffett is a time traveler from the future.


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## Pluto (Sep 12, 2013)

what are you talking about?


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## humble_pie (Jun 7, 2009)

sags i remember earlier this year you were going to buy 8 shares of berkshire B at regular intervals, something like once a month was your program?

did all this come about? best wishes if so ...


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## james4beach (Nov 15, 2012)

sags said:


> 55 Billion US dollars worth of cash on the sidelines.


And a whole bunch of new debt. If I go to an ATM and withdraw $1,000 on a cash advance, do I now have $1,000 of cash on the sidelines?

At year-end
2007: $38 cash, $34 debt, so net = +4
2010: $38 cash, $47 debt, so net = - 9
2013: $48 cash, $71 debt, so net = -23

The mainstream media's "cash on the sidelines" mantra is silly... it's debt-funded. It's not net free cash.

They went from a positive $4 billion cash (net of debt) to negative $23 billion net.


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## SkyFall (Jun 19, 2012)

james that is interesting can you educate me a bit more about that


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## Pluto (Sep 12, 2013)

james4beach said:


> And a whole bunch of new debt. If I go to an ATM and withdraw $1,000 on a cash advance, do I now have $1,000 of cash on the sidelines?
> 
> At year-end
> 2007: $38 cash, $34 debt, so net = +4
> ...


What kind of debt? There are probably making money with the debt, which isn't the same as a cash advance that one does nothing with. If you said you took a cash advance and invested it for a decent profit, that's more like what they are doing. You make is sound like they borrowed, are paying interest, and getting nothing in return, so therefore the cash doesn't count. I don't think the way you make it sound is correct. 

You are always looking for flaws, which isn't a bad thing; but when you don't find a flaw, you see one anyways. Actually I stated that incorrectly. You assume there are flaws before you look, and then when you look you have to find a flaw, because you already assume there is one. 

If you take a cash advance and stick it in your stock account with intentions to buy stock, it is cash on the sidelines. Just because you borrowed it, doesn't mean it isn't available for business or investment purposes.


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## james4beach (Nov 15, 2012)

(I'm a Berkshire shareholder by the way -- I've read every financial report in detail since 2007 and just finished reading the 2013 report in full this weekend)

I'm not disputing that the debt they raised might be under favourable terms. The debt alone isn't bad. What I'm saying is that you're only showing half the picture if you say they have more "cash" on the balance sheet. They also have more debt, and you need to look at both.

In prior years, Berkshire was an entity that had so much cash and liquid current assets that they could, under ANY circumstances, always repay their obligations. They were downgraded (credit rating downgrade) in 2009 and again in 2013, partly because of the new big debts they've been taking on. Berkshire used to be AAA but they've lost that pure status.

What I'm pointing out is that the mantra "cash on the sidelines" is somewhat misleading because it ignores the debt that may have been used. The talking heads on television always sprout the term "cash on the sidelines" and imply that it's an indicator of new net positive wealth. What I'm illustrating here is that just because you see more cash does not mean it's net positive wealth.

Extra debt also brings extra burdens. Interest expenses but also threats to credit ratings. So Berkshire's debt is not a "free" thing, especially when you consider that further credit rating downgrades requires them to post more collateral on other contracts they have. There's also refinancing dangers and the risk of rising interest rates.

The reason I'm posting this is that I'm trying to fight the perception that debt comes with no consequences and somehow you can just ignore it. The business media totally ignores debt. They ignore it for banks, they ignore it for Berkshire, and they ignore it for Apple (saying that all of them are rolling in cash). It's a warped analysis that misleads investors.

Skyfall: I'm looking at their balance sheets. There's the cash line, and then there's the debt (or long term borrowing) line. In Berkshire's reports it's also called notes payable.


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## MrMatt (Dec 21, 2011)

The business media and media in general ignore whatever doesn't fit their needs at the time.

I consider debt and assets, I also consider the liquidity.

BRK got some cash because debt terms were very attractive, paying negligible interest to have a few billion in cash hanging around is really a small price to pay to have the flexibility to act quickly on an opportunity. Many BRK deals came about because they actually had the cash available, and others didn't.


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## doctrine (Sep 30, 2011)

I'm mostly with james4beach on this, he does raise a good point. It's always a treat to be invested in a company with a net cash position, and it's very rare. Berkshire has done some really, really big deals in the last 5 years and there's no way they could have done it without leveraging up. 

Of course, you can make the argument that you'd rather be in a company that has leverage, but that's different than bragging you have billions of free cash available for spending. In the grand scheme though, -$23B on Berkshire's balance sheet is probably well below average when compared to their total assets or any debt to capitalization ratio.

Like james says, it's a big problem with the wider argument that "corporations are sitting on dead money". Show me the billions on corporate balance sheets with no debt offsetting those positions. The health of those corporations, and Berkshire, would be different if the cash balances dropped by 80-90% with no offsetting decrease in debt. 

Berkshire is definitely full of liquidity. But they aren't sitting on 20% of their market cap in net cash.


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## Islenska (May 4, 2011)

In 07 thereabouts I was going to buy one class A share for ~!40K,didn't but followed the stock and I would have been underwater for 4-5 years with no dividend.

Of course now it has redeemed itself I suppose.


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## sags (May 15, 2010)

humble_pie said:


> sags i remember earlier this year you were going to buy 8 shares of berkshire B at regular intervals, something like once a month was your program?
> 
> did all this come about? best wishes if so ...


I did and still do intend to purchase small quantities of Berkshire B shares over a long period.........as a legacy for our son.

I haven't set it up yet...........as I have been trying to get information on what the tax consequences of holding Berkshire would be.......given they are a US company........collect dividends, but don't pay dividends..........the tax consequences should they ever decide to pay dividends........and the taxes due upon my demise.

The post by James is informative and educational as usual and raises more questions on the "debt" side of the ledger. I was under the impression........from the "reliable" business news people........that Berkshire had NO debt and an extra 50 Billion in cash to spend. That is the way I interpreted their messages........so James is doing a public service by advising people of the real deal.

I haven't found a whole lot of information on how Canadians are........or should be holding Berkshire shares for the long term.

But I hope to get it started soon..........or if not...........a better alternative.


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## james4beach (Nov 15, 2012)

Thanks guys. By the way, I hold B shares. This isn't too exotic... BRK.B is the 8th largest holding in the S&P 500 index!

This article talks a bit about how Berkshire took on this debt recently. Berkshire "increased its long-term debt by over 60 percent from 2009 to 2011, while total equity expanded by only about 25 percent."


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## james4beach (Nov 15, 2012)

You can also poke around on Yahoo finance to easily see the Berkshire balance sheet, if you want to observe what I'm talking about

http://finance.yahoo.com/q/bs?s=BRK-A&annual

Look at the Cash line, and the Long Term Debt


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## lonewolf (Jun 12, 2012)

Buffet started his investment empire the very year the U.S went off hard money. His investment style thrives in the rubberized money. Looks like his glory days are coming to an end in Aug BRK was featured in USA today with a chat showing his performance. When an investment starts making magazine covers & headlines from bullish writers it is a major red flag. BKR is a sell


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## HaroldCrump (Jun 10, 2009)

lonewolf said:


> Buffet started his investment empire the very year the U.S went off hard money.


Not entirely true.
While it is true that Buffet became CEO of Berkshire Hathaway (then a textile manufacturing company) in 1970 - just the year before Nixon nixed the Gold standard - he was actually already a very successful investor before that time.
He was running his investing business as a partnership through the mid and late 1950s.
By early 1960s, he was already a millionaire (which is huge in inflation-adjusted terms), and his firm was worth over $7M (again in terms of 1960 US dollars).
By that time, he had already invested in American Express, Geico, US steel, and several power producers in the south west.

Yeah, his firm and personal wealth did take off in a big way in the 1970s and 1980s, but I am not sure that is entirely due to the USD decoupling from gold.



> His investment style thrives in the rubberized money.


Not true.
In fact, quite the contrary...Buffett is all about hard assets.
He never admits this, and he always downplays it whenever this is brought up, but he is all about hard assets.
He loves power plants, steel/infrastructure manufacturers, railroads, food products (chocolate, candy, and now burgers & coffee).

It is true that he does not like gold and other precious metals, but that does not mean he does not invest in hard assets.
Gold is not the only "hard asset", and in fact Buffett will argue that Gold is not a hard asset at all...the kind of stuff he buys are the real hard assets.

He has, from time to time, invested in "paper money" style companies such as investment banks (Goldman Sachs, Bank of America, Wells Fargo, etc.) but those were very opportunistic buys made with the full backing and guarantee of the US Treasury and the Fed.
His investments in Goldman Sachs, BOA, etc. were guaranteed by the Fed.

I'd say those investments were classic _vulture capitalism_.

Secondly, if you follow him closely, he is slowly but surely getting out of those speculative investments (paper money investments) since 2012/2013.
He is already out of Freddie Mac, he is out of Moody's, he is out of Goldman Sachs, and many other highly leveraged financial stocks.
He has retained some preferred stock and convertible debt, but he has been gradually divesting common equity, after having made handsome profits between 2009 - 2013 (fully guaranteed by the govt.).

Instead, he is weighing his portfolio more heavily towards so-called hard assets now.
He bought BNSF railways, right?
He didn't just buy some shares on the stock market...he bought the whole thing and took it private.
A railroad is just as hard assets as it gets.

Same for Mars chocolate, candies, Dairy Queen, P&G, and now Tim Hortons/Burger King combo.

Also note that in most cases, he is not buying common equity.
He is buying preferred stock and convertible debt, by way of PIPEs and bought deals - not open market purchases.

Lastly, do not forget that Buffett's empire includes scores and scores of private companies, all of which produce and sell hard goods, such as clothing & shoes (Fruit of the Loom, Justin, Brown's), cookware (Pampered Chef), furniture, paint, etc.
All of these companies are completely outside the stock market.
He does not care where the stock market goes...he has kept his best assets outside the stock market.

Buffett does not care what happens to the stock market in the near term, what happens to the US$, gold, global conflict, etc.
The vast majority of his investments are in hard assets, and they are held outside the stock market.


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## MrMatt (Dec 21, 2011)

lonewolf said:


> Buffet started his investment empire the very year the U.S went off hard money. His investment style thrives in the rubberized money. Looks like his glory days are coming to an end in Aug BRK was featured in USA today with a chat showing his performance. When an investment starts making magazine covers & headlines from bullish writers it is a major red flag. BKR is a sell


Buffett has been on the cover of magazines for at least 30 years.
I'm glad I haven't been selling.

When you hear about it in the mainstream press, it's a warning sign, but not a definate sell.


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## lonewolf (Jun 12, 2012)

Buffett & his govenrment sachs does have an unfair advantage. There is a reason pipelines are not being built when Buffutt owns a railway that transports oil. Control of government Sachs & a major rating agency that has poor morals gives Buffutt a huge advantage.


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## Uranium101 (Nov 18, 2011)

lonewolf said:


> Buffett & his govenrment sachs does have an unfair advantage. There is a reason pipelines are not being built when Buffutt owns a railway that transports oil. Control of government Sachs & a major rating agency that has poor morals gives Buffutt a huge advantage.


Corrections:
1) He doesn't own any company completely, we do.
2) Buffett reduced holding in Moody's significantly.
3) He doesn't own Goldman Sash, again we do.
4) Pipelines can only deliver oil to certain areas; however, railroads have access to most areas.


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