Archives for May 2018

Having $100 billion in leftover cash is never a bad thing… unless you happen to be the richest investor in the history of the world.

At last weekend's Berkshire Hathaway shareholder meeting – or Warren Buffett cult gathering, as I consider it – the Oracle of Omaha revealed that, even after buying 75 million more shares of Apple, he still has over $100 billion left in cash.

That's about 20% of the total value of Berkshire, so it's a bit of a problem for him.

As he explained to CNBC on Monday, there's a lot of competition among private equity funds and other financial buyers for companies big enough to move the needle at Berkshire.

That's not easy to do.

At the same time, neither is buying; prices are just not that attractive right now, and when it comes to spending Berkshire's money, Buffett is notoriously selective.

He said, "I look at prices and I find it hard to buy things. And incidentally, professional investors aren't going to do better than the average amateur in almost all cases. But I don't find things easily. I mean, we were on and, in March of 2009, when the S&P was in the 660s or 670s, we talked about it then. I mean, this was the bargain counter. And it continued for a long time. Stocks have been very, very cheap." (Note the use of "have been very, very cheap," and not "are very, very cheap.")

While he agonizes over how to spend money, Buffett's often-repeated solution – his classic misdirection, really – for regular investors has always been that they should just buy "low-cost" index funds because, hey, "99% of the population shouldn't even try" to beat the market. 

Publicly, he comes across as a huge fan of indexing, saying, "the best single thing you could have done on March 11, 1942 – when I bought my first stock – was buy an index fund," because "$10,000 invested [there] in 1942 would be worth $51 million today."

Now, his math is right, of course, but there are so many things wrong with this idea I don't even know where to start.

Do you have 76-odd years to wait around for $51 million? Do you have a time machine that will allow you travel back in time and quite literally do as the man suggests?

Me neither.

Naturally, the horde of "Buffettologists" out there, who slavishly hang on his every word and attempt to imitate the man's every move, go out and try and buy time machines set for March 11, 1942.

And failing that, they go and load up on index funds (while BlackRock laughs all the way to the bank), because they think that's what Warren Buffett does.

Obviously, he does nothing of the sort.

So let's let the Buffettologists go shop for magic time machines and throw good money after bad on expensive index funds – maybe we'll check back in with them in 2094 and see how they did, though I doubt they'll be sitting on anywhere near $51 million.

Instead of trying (and failing at) what Warren Buffett and Charlie Munger do now that they are rich…