Warren Buffet - Famously known as “Oracle of Omaha”, as you all know, is one of the most successful investors in the world and chairman and CEO of Berkshire Hathaway. Many in the investing community keep a keen eye on what Mr.Buffet says Annual letter to Berkshire shareholders which provides an insight into how Buffett and his team think about everything from investment strategy to stock ownership to company culture, and much more.
In 2020’s Annual letter, Buffet wrote the following : “If something close to current rates should prevail over the coming decades and if corporate tax rates also remain near the low level businesses now enjoy, it is almost certain that equities will over time perform far better than long-term, fixed-rate debt instruments. These elements, coupled with the ‘American Tailwind,’ will make ‘equities the much better long-term choice for the individual who does not use borrowed money and who can control his or her emotions.”
In short, Buffett is suggesting that over the coming decades, it will be better to be invested in equities (aka S&P 500 Index) versus Treasury bonds, given that the yield on bonds is so low.
Before we blindly heed Buffett’s advice we must factor in that he has long been a source of contradiction.
Buffett is now holding his largest amount of cash in the history of the firm.
As the old saying goes: “Follow the money.”
Interestingly, while Buffett has been telling everyone else to buy a stock index, and avoid bonds, he has been doing exactly the opposite by “buying bonds.”
Make no mistake, Buffett is indeed a great investor, and has made a tremendous amount of money for his shareholders over the years. One of the reasons for this is that at times of market excesses he has preferred holding cash.At the time he is leaving money on the table, but that cash can be deployed when markets are panicking and value appears. Remember, Buffett had cash on hand in 2008 to lend to Goldman Sachs at 10%.
So, what would have happened if Buffett had taken his own advice and invested his cash into the S&P 500 index rather than bonds. The index is highly liquid, so he could have sold the index at any time he needed cash for an acquisition, and the shares could have been lent out for an additional return on his investment.
While it may not look like much on a percentage basis, the cumulative return lost to Berkshire Shareholders over the last decade was roughly $90 Billion dollars.
Or rather, a $1000 investment in 2010 would have grown to nearly $4000 versus just $3500.
The following post is an excerpt from this post which was published last year in march : https://www.investing.com/analysis/buffett-lost-90-billion-by-not-following-his-own-advice-200512310
Update : Fast forward to what has been an extraordinary roller coaster of a ride (with the pandemic) for the last 20 months roughly : Warren Buffett’s cash pile tops record with $149.2 billion on hand from $128 Billion last year.
What’s your view on this? Is this a case of missed opportunity for value investors like buffet or is Buffett right this time in his approach?
Do you agree with Buffet’s strategy of holding record amount of cash?
- YES. Market will give better opportunities
- NO. He missed the bus from last 1 year
- DON’T KNOW. it’s confusing
0 voters
