Spencer Jacob
Appearances
The Journal.
Does Warren Buffett Know Something We Don’t?
And that has people very interested and a little bit concerned about what he might think about the state of the market and the global economy.
The Journal.
Does Warren Buffett Know Something We Don’t?
Warren Buffett is a remarkable investor. Warren Buffett... He's not just lucky. You know, he has such a long track record, a 70-year track record that we can document of his investing. And obviously not every year has been a resounding success. But compounded over those years, no one has done it as well and no one has done it for as long as Warren Buffett has.
The Journal.
Does Warren Buffett Know Something We Don’t?
Compound interest is basically making money and then making money on that money and then making money on that money and making money on that money. And it can turn into a gigantic difference at the end.
The Journal.
Does Warren Buffett Know Something We Don’t?
If you had invested in Berkshire Hathaway when he took it over in 1965, today you would have made 140 times as much as an investor who just bought the Standard & Poor's 500.
The Journal.
Does Warren Buffett Know Something We Don’t?
It's been the last two or three quarters that Berkshire Hathaway has been selling down its positions. So Berkshire Hathaway was building up cash. He has sold down two of his largest shareholdings, not to zero, but tens of billions of dollars of each of these holdings.
The Journal.
Does Warren Buffett Know Something We Don’t?
You know, I got so many reader emails and comments saying, does this have to do with estate planning? Maybe it's a smart estate planning strategy and then he has more cash to leave to people. That's actually not the case at all because he is going to leave more than 99% of his money to charity in the form of Berkshire stock.
The Journal.
Does Warren Buffett Know Something We Don’t?
So whether Berkshire has a lot of cash or has no cash, does that matter at all?
The Journal.
Does Warren Buffett Know Something We Don’t?
Yeah, it's been suggested to me, you know, reader comments and some smart reader comments. Well, maybe he was hedging his bets because of the election, or maybe he was concerned about inflation, or maybe he sold all these stocks because he reckoned that capital gains taxes would rise. And so he wanted to lock in a lower rate. And I'm going to say, based on my knowledge,
The Journal.
Does Warren Buffett Know Something We Don’t?
I don't think that the economy or taxes or capital gains or anything like that or any even an election or who sits in the White House has any effect on him because it's also short term.
The Journal.
Does Warren Buffett Know Something We Don’t?
He has built up cash and cash equivalents of $325 billion on the balance sheet of Berkshire Hathaway.
The Journal.
Does Warren Buffett Know Something We Don’t?
Well, he hasn't said anything to that effect, and there isn't a lot of evidence that we're on the precipice of a recession. But there's widespread thinking among people who follow him that he just sees the market as too expensive. You know, something, the pendulum has swung really far one way, then it's got to swing back the other way. You just don't know exactly when.
The Journal.
Does Warren Buffett Know Something We Don’t?
So Goldman Sachs recently came out and this got a lot of attention. They said, we think that the stock market over the next decade, the S&P 500, which is the main stock index, is going to return 3% a year.
The Journal.
Does Warren Buffett Know Something We Don’t?
People are like, what? Are you crazy? 3% a year? You know, what are you smoking? But that is consistent with some other measures out there. Vanguard, for example, sees growth stocks returning even less than that.
The Journal.
Does Warren Buffett Know Something We Don’t?
Yeah, it is not in a bank, so you don't have to worry about a bank going bankrupt or being robbed or something where Warren Buffett keeps that cash. It is primarily in U.S. Treasury bills. If Warren Buffett tomorrow decides he needs cash, he could sell $100 billion of Treasury bills. It is as good as cash. And it's also safer, right?
The Journal.
Does Warren Buffett Know Something We Don’t?
That's right. It is the safest and most liquid investment in the world. It's not the most profitable investment in the world. But at the moment, they're paying a decent interest rate.
The Journal.
Does Warren Buffett Know Something We Don’t?
That is a lot of money, but on $325 billion, I mean, you're talking about $15, $16 billion a year, which for you or me is a lot of money.
The Journal.
Does Warren Buffett Know Something We Don’t?
Yeah, I think it gets you from end to end. I have not done the measurement. I think it gets you to the moon or the sun or something crazy like that. And I mean, you imagine like Warren Buffett sitting in a bunch of money or gold or whatever, or Scrooge McDuck diving.
The Journal.
Does Warren Buffett Know Something We Don’t?
I'd take it too. I think I'd settle for that.
The Journal.
Does Warren Buffett Know Something We Don’t?
He's spoken many times about why he likes to have a lot of cash. He likes to have dry powder for opportunities. But he's also on the record, and pretty recently, that he would like to do a big deal. You know, he's asked pretty much every year, especially since he's had this large amount of cash, what are you going to do with this cash? What are your plans?
The Journal.
Does Warren Buffett Know Something We Don’t?
And, I mean, he's just said, you know, I'd sure love to do a deal, $50, $75, $100 billion deal. He's called it, you know, an elephant. He'd like to go and bag an elephant.
The Journal.
Does Warren Buffett Know Something We Don’t?
He has not hesitated to sit on the sidelines and just sit on that cash. And so, you know, he's very disciplined that way. And so that should concern all of us, just as people who have 401ks. Why is he not seeing good opportunities? What kind of returns does he foresee?
The Journal.
Does Warren Buffett Know Something We Don’t?
He now manages so much money that he has to make very large investments. And he only can buy very large companies. And I think the question is, really is like, can Warren Buffett do 20% a year in the future? And he probably can. And there's two reasons for that.
The Journal.
Does Warren Buffett Know Something We Don’t?
One is that markets are not really well-priced to deliver outstanding returns today over the next decade because markets are very expensive. And so the more expensive things are, the less prospective return that you have. But the other thing is that he just can't double the market's return anymore because he has a trillion-dollar company
The Journal.
Does Warren Buffett Know Something We Don’t?
Yeah, it's a high class problem that you have a lot of money and you can't double it. You can't buy a $100 billion company and then have it be worth a trillion dollars in a few years because that just doesn't happen, right? So you'd have to be so not just smart, but lucky for that to happen. And so he is reaching the limits of his ability to outperform the market. He already has reached it.
The Journal.
Does Warren Buffett Know Something We Don’t?
I think the takeaway for everyday investors is not to sell everything and put it in cash because that's almost always a mistake. Trying to time the market usually has poor results. You are not Warren Buffett. I think the takeaway for everyday investors is if he's cautious about the general level of stocks... maybe you should temper your expectations as well.
The Journal.
Does Warren Buffett Know Something We Don’t?
You do need to invest your money in something. So maybe I want to put some more of my eggs in a different basket as opposed to the same stocks that everyone owns. I think that's a very practical takeaway. I think selling everything and sitting in cash is not a practical takeaway because it's never been a long-term winning strategy.
The Journal.
Does Warren Buffett Know Something We Don’t?
Warren Buffett's reasons for doing that should not be your reasons for doing that.
The Journal.
Does Warren Buffett Know Something We Don’t?
Do not attempt at home, kids. But $325 billion is... It's a tremendous amount of money. It's enough to buy all but the 24 or 25 largest U.S.-listed companies. You know, he could buy Boeing and AT&T and have cash left over. And so it has people scratching their heads.