Berkshire Hathaway 2017 Annual Meeting Audience Question # 39

Why Warren wants Berkshire to have at least $20B in cash or cash equivalents at all times

Warren Buffett:

Jonathan?

Jonathan Brandt:

I understand that Berkshire is much more liquid than is ideal right now with a 113 billion of consolidated cash and bonds versus policyholder float of 1-0… 105 billion. But I have trouble calculating how much incremental buying power Berkshire has at any point in time.

You’ve talked about having a minimum of 20 billion in cash on a consolidated basis.

But for regulatory, risk control, or liquidity purposes, is there some minimum amount of float beyond the 20 billion that has to be in cash bonds or, say, preferred stocks?

Or can all but 20 billion be put into either common stocks or invested into wholly-owned businesses if you found attractive opportunities?

Warren Buffett:

Yeah.

Jonathan Brandt:

What does the balance sheet look like if you were fully invested? And where does additional debt fit into the equation, if at all?

Warren Buffett:

Yeah. The… I wouldn’t conflate the cash and the bonds. I mean, when we talk about 20 billion in cash, we can own no bond beyond that. Twenty billion would be the absolute minimum. As a practical matter, I never…

Since I’ve set 20 billion as a minimum, I’m not going to operate with 21 billion any more than I’m going to see a highway, a truck sign that says maximum load 30,000 pounds or something and, then, drive 29,800 across it. So, we won’t come that close.

But the answer is that, A, we could use… we’re not inclined to use debt. Obviously, if we found something that really lit the… lit our fire… we might use some more debt, although that’d be a… it’s unlikely under today’s circumstances. But we can…

Twenty billion’s an absolutely minimum. You can say that because I say 20 billion’s an absolute minimum, it probably wouldn’t be below 24 or 25.

And we could do a very large deal if we thought it was sufficiently attractive. I mean, we have not put our foot to the floor on anything for really a very long time. But if we saw something really attractive…

We spent 16 billion back when we were much smaller in a period of two or three weeks… probably three weeks maybe… in the fall of 2008. And we never got to a point where it was any problem for me sleeping at night. And now, we, obviously, have a lot more money to put out.

So, if a good… Charlie, at what point, if I called you, would you say, “I think that’s a little bit big for us today?”

Charlie Munger:

I would say about $150 billion.

Warren Buffett:

Well, in that case, I’ll call you.

Don’t… I’m a little more conservative on that than, actually, Charlie. But we both would do a very, very big deal if we…

Charlie Munger:

We don’t have to agree perfectly.

Warren Buffett:

Yeah. It’d have to be…

But, if we find a really big deal that makes compelling sense…

Charlie Munger:

Now, you’re talking.

Warren Buffett:

… we’re going to do it.

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