Why is Warren Buffect keeping so much cash?

Is a market crash coming?

You would see these headlines very often, because they achieve the objective of the media outlet, which is to induce fear and make you read the article.

The reasons given differ every time, and they sound rational.

For example, currently one of the reasons given is the high amount of cash on books by Berkshire Hathaway, the company owned by legendary investor Warren Buffett.

It is true that the cash on books of Berkshire is indeed high, at almost 51% of its book value.

But, that is not the highest cash Berkshire has kept on the books. The highest cash/book is in 86%, in 2004.

The average cash to book value of Berkshire is also pretty high, almost 38%.

This analysis gives rise to thinking about alternate reason to this phenomenon than thinking about Buffett expecting a market crash.

The fact is that this is the way Buffett works. He keeps the cash as a firepower to buy stuff when they become super-cheap.

Many people think Buffett ditched Graham's philosophy and shifted to the thinking of Fisher. The example given there is Buffett's purchase of Coke in 1988.

If you look closely, the average PE Buffett paid for the purchase of Coke was 13, which almost qualifies for a Grahamian framework.

More recently, Buffett again bought Apple at a PE of almost 10, again something that will fit the criteria of most value investment frameworks.

And that is precisely why Buffett keeps such extraordinary amount of cash, to buy stuff by loads when stocks he wants become dirt cheap. We can learn that from him.

In a way, the Berkshire biryani never changed its Grahamian masala, it just added a little bit of Fisherian garnish, that's all.