Berkshire Hathaway 1994 Annual Meeting Audience Question # 44

Does Berkshire follow a specific asset allocation strategy?

Warren Buffett:

Zone 3.

Audience Member:

I’m Whitney Anderson from Miami, Florida. And my question is, right now, we are reading about various analysts and how you should, in their individual opinion, adjust your more cash, more stocks, more bonds because of…

How does Berkshire Hathaway feel about times of relative financial insecurity? Do you arrange for more cash reserves looking forward to a time when you might be able to buy? Or do you go along your path?

Warren Buffett:

I think the question is do we sort of get into asset allocation by maintaining given levels of cash, depending on some kind of outlook or something of the sort?

We don’t really think that way at all. If we have cash, it’s because we haven’t found anything intelligent to do with it that day, in the way of buying into the kind of businesses we like.

And when we can’t find anything for a while, the cash piles up. But that’s not through choice, that’s because we’re failing at what we essentially are trying to do, which is to find things to buy, and…

We make no attempt to guess whether cash is going to be worth more three months from now or six months from now or a year from now.

So it is… you will never see… we don’t have any meetings of any kind anyway at Berkshire, but we would never have an asset allocation meeting. We would… keep looking. I mean, Charlie’s looking, I’m looking. Some of our managers are looking.

We’re looking for things to buy that meet our tests, and if we showed no cash or short-term securities at year-end, we would love it, because it would mean that we’d found ways to employ the money in ways that we like.

I think I would have to admit that if we have a lot of money around, we are a little dumber than usual. I mean, it tends to make you careless.

And I would say that the best purchases are usually made when you have to sell something to raise the money to get them, because it just raises the bar a little bit that you jump over in the mental decisions.

But we have, I don’t know what we’ll show, but certainly well over a billion dollars of cash around, and that’s not through choice. That is a… you can look at that as an index of failure on the part of your management.

And we will be happy when we can buy businesses, or small pieces of businesses, that use up that money.

Looking for an offline, PDF copy of all shareholder questions carefully arranged into specific topics such as How to properly evaluate a company for potential investment, Intelligent Investing and Secrets to achieving Success and Happiness? Click on the image below to learn more.

Q&A with Warren Buffett and Charlie Munger: A Compilation of All Shareholder Questions and Answers from The Berkshire Hathaway Annual Shareholder Meetings

Click here to return to the Q&A topic list. Or alternatively, you can proceed to the next or go back to the previous question.

Don`t copy text!