“The way to get rich is to keep $10 million in your checking account in case a good deal comes along.” – Charlie advocates keeping $10 million in cash, and Berkshire keeps $72 billion sitting around in cash, waiting for the right deal to show up. The lousy return their cash balances are getting is a trade-off—poor initial rate of return in exchange for years of high returns from finding excellent businesses selling at a fair price.
This is also something most people get wrong about leverage and having excess cash. They’d rather put all their cash all the time in an asset that will grow a little rather than keep some cash available as margin for (1) mitigating downside or (2) investing heavily when a great opportunity comes your way. Charlie can do this because he has learned to recognize high asymmetric upside in his investments. For most, a margin of safety for downside and an index portfolio that you add to annually is best.
It’s another barbell strategy. Don’t spend on most things and keep a cash reserve or bet heavily on the right opportunities— the ones with huge obvious asymmetric upside and a large margin of safety. Nothing in between.
