Warren Buffett’s $335 billion cash pile might be the biggest in the world. So why hold all this cash instead of investing it?

At the latest Berkshire annual meeting, Warren and incoming CEO Greg Abel break it down.

How Cash Reserves Keep You Independent

Those massive cash reserves partly reflect a lack of reasonably priced investments today. But there’s another reason: cash keeps Berkshire independent.

“…we will never be dependent on a bank or some other party for Berkshire to be successful,” Abel said.

Remember when all those big banks went bust in 2008? Most were dependent on overnight loans.

Imagine that in your personal life. Each day, you roll over a loan with some bank. If that loan gets pulled, you suddenly can’t pay your mortgage or buy groceries.

It’s insane! And yet many big banks ran this way for decades.

For the most part, it was fine. The loans rolled over every day like clockwork.

But when panic hit in the markets in the fall of ’08, no one wanted to lend to anybody. So institutions that were over a century old disappeared in a flash.

Big cash reserves ensure this will never happen to Berkshire. On my own lilliputian scale, I also make sure I have plenty of stable, liquid securities. And I never take on so much as a dime of debt.

The Importance of Reading

Many shareholders ask Warren for advice on how to become great investors. Time and again, he tells them the same thing: read.

“Keep a lot of curiosity and read a lot…” Warren advises a young girl who wants to work at Berkshire one day.

Warren’s not the only great investor giving this advice. When Tim Ferriss asked Bill Gurley how to get better as an investor, Bill just rattled off a long list of books. I’ve read some of them and plan to read more!

Berkshire itself is a wonderful source of reading material for investors, Warren explains.

“Berkshire Hathaway has got plenty of material out there for you to read. And when you get through reading it all, you’ll know way more than most of the people that work at Berkshire.”

This reminds me that I need to pick up that book of Warren’s annual letters. I’d love to get his views on the world and markets over the years, through boom and bust and upheaval.

Wrap-Up

Many companies live right on the edge, leveraged to the hilt. A lot of individuals do the same in their personal lives.

At Berkshire, Warren and Greg do the opposite. They set plenty of cash aside.

This way, they’ll never depend on someone else to stay in business.

If you want to get rich, you first have to avoid going broke. Warren said it well years ago:

“Over the years, a number of very smart people have learned the hard way that a long string of impressive numbers multiplied by a single zero always equals zero.”

Come back tomorrow for the final hour of the Berkshire annual meeting and more insights from Buffett!

More on investing:

The Berkshire Annual Meeting (Part 2)

The Berkshire Annual Meeting (Part 1)

Buffett’s Annual Letter

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