Considering that Berkshire Hathaway has about 30% cash, I have been wondering how they can match or even exceed the returns of the S&P 500. It would appear that having that kind of money would negatively impact performance. Is the difference due to their outperforming subsidiaries, or is Warren Buffet’s market timing the only factor? How do they manage to achieve this?
If someone knows the precise reason why, I’d like to know it. I had assumed that Apple was the reason they were able to match market returns while holding valuable firms like railroads and insurance.
Every capable company. On the other hand, my employer is listed on the Nasdaq. Consider all the businesses that were just sitting on cash at Silicon Valley Bank.
Many companies take out small, very short-term loans from major banks to cover payroll. While they have the cash available, this approach ensures that all or nearly all employees receive their direct deposits on payday. They typically pay off the loan within a few business days.
Although they could manage it with their own funds, this method simplifies the process and guarantees timely payments.
Companies use credit for most every transaction at a certain level, that’s pretty common - you still need demand accounts obviously but using credit helps to isolate the deposits from all the noise.
Are you examining the performance of their real investment portfolio in comparison to the S&P 500, or are you comparing the performance of their stocks to the S&P 500? In the event that Berkshire’s stock increases from 1.0x book to 1.3x book, shareholders’ equity will have increased by 30% without any real improvement in investment performance.
Wholey held businesses typically operate in linear industries.
Warren stated that they were buying Treasury bonds at the shareholders’ meeting two years prior since they could not find a better firm at the time to invest in.