THE VALUE OF CASH

“Cash is the equivalent of financial Valium. It keeps you cool, calm and collected.” Bruce Berkowitz

“I think it’s [cash] actually an aggressive strategic asset because it’s one of the few things that rises in value as the market plunges. Its value is inversely proportional to how challenging the environment is.” Ken Shubin Stein

“Holding cash is uncomfortable, but not as uncomfortable as doing something stupid.” Warren Buffett

"The hardest thing to do in investing is not the decision to buy or sell but to sit idle even if that means allowing the build-up of some cash." Christopher Begg

"The big lesson I learned, which was a correct lesson to learn, in the financial crisis is to hold cash." Mohnish Pabrai

“I have found it wise, in fact, to periodically turn into cash most of my holdings and virtually retire from the market. No general keeps his troops fighting all the time, nor does he go into battle without some of his forces held back in reserve.” Bernard Baruch

"There will be some incident, it could be tomorrow. At that time, you need cash. Cash at that time is like oxygen. When you don't need it, you don't notice it. When you do need it, it's the only thing you need. We operate from a level of liquidity that no one else does." Warren Buffett

“Buying hedges in a choppy market can be expensive, so we view cash as one of the cheapest hedges out there.” David Nierenburg

“Unfortunately the important criterion of investment merit is obscured or lost when substandard investments are acquired solely to remain fully invested.” Seth Klarman

“While the S&P Index is by design a fully invested index, we have generated our returns with negative leverage, ie cash has averaged 14% of invested capital since inception.” Bill Ackman

“Fairholme views market crashes, panics, and downturns as opportunities to buy more of the companies we love at fire sale prices. The only way to exploit these opportunities is to have cash on hand.” Bruce Berkowitz

“Naysayers argue that holding a large amount of cash that yields nearly nothing is foolish, and perhaps it is - until it isn't. On all counts, we think it's better to have cash and not need it, rather than to need it and not have it.” Bruce Berkowitz

“There are worse situations than drowning in cash and sitting, sitting, sitting. I remember when I wasn’t awash in cash – and I don’t want to go back.” Charlie Munger

“Our willingness to hold cash at times when great opportunities are scarce allows us to take advantage of opportunity amidst turmoil that could handcuff a competitor who is always fully invested.” Seth Klarman

"We think of cash as a trump card that can be played any time. Holding a card in your hand that ranks above all others is a secret weapon in the competitive game for the best ideas at the best price, allowing us to gain an advantage. There, however, the analogy breaks down since cash, as an investment trump card, does not depend on the luck of the draw. We actually believe that our equity performance is much greater precisely because we hold cash in reserve. We get enthused —and have the wherewithal to take action—when prices of existing or prospective holdings fall because cash allows us to buy more of a good idea, like the two-for-the-price-of-one bargains that entice consumers at the mall or online." Frank Martin

“I’d much rather apologize for holding cash than for paying too much.” Gregg Powers

“Cash is our hedge. That’s an anchor on returns when the market’s strong, but it’s a hedge when markets are bad and it allows you to put money to work at those times to generate attractive future returns.” Andrew Jones

“When bargains are lacking, we are comfortable holding cash.” Seth Klarman

"Because we are focused on absolute returns, we will hold cash in the absence of values and a margin of safety. We view cash as an opportunity fund." Arnold Van Den Berg

“It takes character to sit there with all that cash and do nothing. I didn’t get to where I am by going after mediocre opportunities.” Charlie Munger

"You're deluding yourself if you believe your stocks, however cheap they are, won't temporarily go down when Mr Market decides to correct. When that happens, your cash becomes ammunition for future bargains." Charles de Vaulx

"You invest only in the opportunities you see. I have no problem sitting on cash." Marc Lasry

"We view cash as a residual of a disciplined underwriting approach and as deferred purchasing power." Mathew McLennon

"Cash is a wonderful thing. If you have cash you can buy." David Winters

“Because the future is never certain, we also try to maintain modest amounts of dry powder to act opportunistically should panicked selling conditions occur. Further, we’re willing to hold large amounts of cash if values are not available.” Jake Rosser

"There are times to sit on cash, because sometimes cash enables you to take advantage of investment opportunities." Sir John Templeton

“We like carrying around a lot of cash because that what gives us the opportunity to take advantage of opportunities when they present themselves.” Jim Tisch

"We don't feel the need to force cash to work just because it is a zero-percent yield today, because the return to cash has two components; it has current yield, and it has the option of redeployment in distress." Mathew McLennon

“Contrary to many mutual fund managers, we do not believe we have to be fully invested 100% of the time. Our cash balance is purely a residual of whether or not we’re finding enough to invest in.” Jean Marie Eviellard

“Cash combined with courage in a time of crisis is priceless.” Warren Buffett

"In many different ways, cash gives you options. It offers wonderful downside protection and upside optionality." Mohnish Pabrai

"It's better to earn nothing than to potentially lose money by making a risky investment that isn't up to your standards. Cash is a weapon.” Guy Gottfried

"In an up market the liquidity looks like it’s hurting you, but when prices on average are high, people don’t think about the optionality value of cash. That value reflects what cash can buy in the future versus what it can buy today. Sometimes the difference can be enormous." Keith Trauner

“The value of holding cash lies in its ‘optionality’ value, which allows us to purchase cheap securities during market uncertainty without needing to sell existing positions (which would have likely become cheap themselves in a market sell-off).” Fred Liu

"I have always loved cash - if you've got lots of it you will never have to pass up a great opportunity." Peter Cundill

"Cash is misunderstood by some, who do not appreciate the value of a cheap option on a better future entry point." Steve Romnick

"The ‘we’ investor is comfortable holding cash when he can’t find attractive investments." Howard Marks

“Cash is a residual decision. We will not knowingly pay fair value or more than fair value for any business." CT Fitzpatrick

"Our cash balances .. are solely the delta between the fruits of our hunt for opportunity and our ongoing disciplined approach to selling." Seth Klarman

“We’re not really ever positioning ourselves. We’re simply trying to do the smartest thing we can every day when we come to the office. And if there’s nothing smart to do, cash is the default option.” Warren Buffett

"Our cash position is not a ‘market call,’ it simply reflects an absence of ideas that we find attractive. We’ve never made hay by hoarding cash in anticipation of market corrections; a quick trip down memory lane serves as a reminder that we entered both bear markets (2002 & 2008) fully invested. We prefer partial ownership in businesses over snappy trades that require gazelle-like instincts to dart away from any hint of danger. We think attempting to time markets (knowingly or unknowingly) is a fool’s errand and agree with Peter Lynch: “Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.” Allan Mecham

"If we have cash, it’s because we haven’t found anything intelligent to do with it that day, in the way of buying into the kind of businesses we like. And when we can’t find anything for a while, the cash piles up. But that’s not through choice, that’s because we’re failing at what we essentially are trying to do, which is to find things to buy." Warren Buffett

"We stockpiled cash when the market got nutty and we couldn't find stocks to buy that made sense. Cash was a reasonably good anchor to windward." John Neff

"When you cannot find a sufficient number of attractive securities to remain fully invested, be willing to hold cash. Do not stretch to remain fully invested." Ed Wachenheim

“If you can't find any companies that you think are attractive, put your money in the bank until you discover some.” Peter Lynch

“When valuations are high, we wind up with more cash. When valuations are low, we wind up with less.” Peter Keefe

"If you have cash, you may remain safe in the shelter of the harbour until the storm passes." Frank Martin

"One of the most common misconceptions regarding Baupost is that most outsiders think we have generated good risk-adjusted returns despite holding cash. Most insiders, on the other hand, believe we have generated those returns because of that cash. Without that cash, it would be impossible to deploy capital when we enter a tide market and great opportunities become widespread." Brian Spector

"If you go back and study the great investors throughout history—the Medicis, the Morgans, the Rothschilds, and recently Buffett—these great investors with terrific records share a common trait: they were always in a position to be liquidity providers. Each was willing to hold cash until someone was in distress or under duress, and they could provide liquidity at very attractive prices... I actually consider cash to be an asset class." John Phelan

"What’s unique about cash - and only cash has that attribute - it is not only a buffer that does not go down when other things go down. Cash is what you actually need to buy low so you can then sell high. When people say you are supposed to pounce when blood in the streets, you need cash to do that." Charles De Vaulx

"I think of the cash as an offensive weapon that allows me to take advantage of opportunities without having to worry about any type of liquidity issue." Bill Nygren

"We have maintained a percentage of liquidity between 15%-20% from the start. Our accumulated return of about 20% since inception would have been higher if we had been 100% invested. However, this “visible” cost of liquidity conceals an “invisible” advantage: the flexibility it gives us to make the most of the opportunities that arise from the many uncertainties surrounding the companies and countries where we invest." Álvaro Guzmán

"Thinking outside the box about the optionality of cash gives quiet but resolute credence to the contention that this seemingly benign asset is in reality a double edged sword, defending against loss on one hand and arming for gain on the other." Frank Martin

"Be comfortable holding cash. Nothing in nature is as powerful as a void and that's why 'cash' is so difficult to hold. However, one of the keynotes of creativity is to avoid 'premature closure.'" Bennett Goodspeed

“I think cash can be a good fundamental investment decision. When you don’t have any other ideas, cash can be a good choice. At the least, it’s better than throwing money around speculating.” Li Lu

“I don't think we have a master plan of knowing where the opportunities are. We're trying to find intelligent things to do with a torrent of surplus cash. And we've always had a torrent of surplus cash. And we're always looking for intelligent things to do with it. And if we find things that are intelligent to do, we do it. And if we don't find anything, we'll let the cash build up. What the hell's wrong with that?” Charlie Munger

“We prefer to invest cash opportunistically, not routinely, and to do so in accordance with our valuation discipline and not arbitrarily to minimize cash. Cash does not burn a hole in our pocket in the absence of opportunity. In short, we do not look at cash levels to determine whether to buy stocks; we look at stocks to determine whether to invest cash.” John Neff [Akre]

“We do not part with your cash in order to 'stay fully invested' or out of concern for 'tracking error.' We only part with cash when we have something specific we feel good about doing with it. This is one of the means by which we strive to manage your money as if it were our own. We appreciate that cash compounds at a negligible rate. But we also believe cash can be an accelerant of long-term returns when it is reserved for 'highest and best' opportunities rather than sprinkled pro-rata up and down the portfolio. In short, we do not look at cash to determine whether to buy stocks; we look at stocks to determine whether to deploy cash.” Chuck Akre