Every year, around this time of the year, Warren Buffett writes his annual letter to the shareholders of his holding company, Berkshire Hathaway. Besides writing about the companies' performance, the doyen of equity investments always writes entertainingly about a range of business and financial issues. As always, his wisdom and wit shines through his 2015 letter too. Click here to download the complete letter from Berkshire Hathaway.
Here, Buffett shows why high cash holdings are not the waste that equity analysts make them out to be.
At a healthy business, cash is sometimes thought of as something to be minimized - as an unproductive asset that acts as a drag on such markers as return on equity. Cash, though, is to a business as oxygen is to an individual: never thought about when it is present, the only thing in mind when it is absent.
American business provided a case study of that in 2008. In September of that year, many long-prosperous companies suddenly wondered whether their checks would bounce in the days ahead. Overnight, their financial oxygen disappeared.
At Berkshire, our "breathing" went uninterrupted. Indeed, in a three-week period spanning late September and early October, we supplied $15.6 billion of fresh money to American businesses.
We could do that because we always maintain at least $20 billion - and usually far more - in cash equivalents. And by that we mean U.S. Treasury bills, not other substitutes for cash that are claimed to deliver liquidity and actually do so, except when it is truly needed. When bills come due, only cash is legal tender. Don't leave home without it.
This story first appeared in March 2015.