Is Your Portfolio's Most Powerful Asset... Cash?
Why the world's best investors are hoarding billions, and what they know that you don't...
Ever wonder why some of the world's best investors hold massive cash positions?
It's not because they're scared. And it's certainly not because they can't find anything to buy.
They understand something most investors miss: Cash isn't just money sitting idle. It's a *strategic weapon*.
Today, we're diving deep into why cash might be the most underappreciated asset in your portfolio.
The Paradox of Cash
Warren Buffett currently sits on $325.2 billion in cash at Berkshire Hathaway.
Think about that number for a moment.
The same man who famously said "cash is always a bad investment" is holding enough cash to buy any company it wants from the FTSE 100.
So what gives?
The Hidden Power of Cash
Here's what most investors get wrong: They view cash as dead money. A performance drag. A necessary evil.
But the masters see it differently.
Seth Klarman, founder of Baupost Group, puts it perfectly:
"Cash is the ultimate risk aversion. But clients are uncomfortable about it. Why people should pay a money manager to hold cash? They are paying the manager to wait for the opportunity to invest."
This gets to the heart of strategic cash management:
It's not about holding cash forever
It's about having ammunition when opportunities arise
It's about being able to act when others can't
The Buffett Blueprint
Buffett's approach to cash is masterful. He's built Berkshire into a cash-generating machine through:
Insurance float - providing essentially interest-free loans
Cash-flowing businesses - from utilities to railways
Dividend-paying stocks - creating steady income streams
Capital-light operations - minimising reinvestment needs
But here's the key insight: Buffett views cash like oxygen. Essential in sufficient amounts, but unproductive when stockpiled.
Our Strategic Framework
Based on our study of the masters, here's how we think about cash:
Maintain a base position (5-15% of portfolio)
Let it build when valuations are stretched
Deploy *aggressively* when opportunities arise
Never feel pressured to invest it
Remember: The stock market is a no-called-strike game. You don't have to swing at every pitch.
Bottom Line
What makes cash truly powerful isn't the paper in your account.
It's the optionality it provides.
"Optionality is simply the right to take an action, with no obligation to do so—hence you can only benefit from it and never lose." - Nassim Nicholas Taleb
That's the essence of strategic cash management.
Cash isn't just dry powder. It's strategic optionality in its purest form.
Until next week,
Dom
Founder & Chief Investment Officer
Schwar Capital
P.S. If these ideas resonated with you, share them with another thoughtful investor. The best ideas, like the best investments, compound when shared.
Disclaimer: The content provided in this newsletter is for informational purposes only and does not constitute financial, investment, or other professional advice. The opinions expressed here are those of the author and do not necessarily reflect the views of Schwar Capital. Investing involves risk, including the possible loss of principal. Past performance is not indicative of future results. The author may or may not hold positions in the stocks or other financial instruments mentioned. Always do your own research or consult with a qualified financial advisor before making any investment decisions.
I always try to hold around 10% cash. I was able to catch some quality names during big dips last year because of that. Key is this: "Never feel pressured to invest it".
Cash is oxygen, especially cashflow. Wrote about similar topic a while back.
Great piece.