Warren Buffett’s unique view on Cash and Deposits as an investment

Warren Buffett’s unique view on Cash and Deposits as an investment

Warren Buffett, probably the greatest investor of all time, has a unique way of looking at his cash holdings. Given that so many Irish individuals have their savings and possibly pensions, sitting in bank deposits and cash funds, this may be of interest. Now, obviously Mr Buffett is one of the world’s richest men, so has some scope for losses and can take risk in comfort, but there is still an important lesson for all of us here. He looks at his cash holdings as a Call Option on the markets. What this really means is that he likes to maintain cash for times when markets are really good value. He looks for periods when markets have crashed, sentiment is dreadful and he can pick up stocks at rock bottom prices. An example of this being his high-profile banking investments in late 2008 (Goldman Sachs).

We could all take something from this for our own pensions and investments. The tendency for retail investors is to buy funds with really good past performance when economies and markets are doing really well. This is the exact opposite of the Buffett strategy. We should look for value, and always be wary of strong market rallies or funds that have done brilliantly well in the past. As his famous quote goes – ‘Be fearful when others are greedy and greedy when others are fearful’. Wouldn’t that have been a great strategy in Ireland over the past 10 years!

Link to full article here