Warren Buffett has the cash to buy Tesla, Starbucks, or McDonald's | Hacker News Reader

Warren Buffett has the cash to buy Tesla, Starbucks, or McDonald's

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69 pointsgscott65 comments

Yes. Buffet has cash. Buffet has lots of Cash for the last 10 years or so, and has said that there has been a distinct lack of opportunity to deploy that cash in significant chunks to buy good companies at reasonable valuations.

What I'd really like to know is the breakdown of their exposure to life insurance (re?) vs other insurance products (auto) that might not be as badly affected by the pandemic. He's said that they've been on a good insurance run for a while, but that it will end at some point with a really bad event. I don't know if this is that bad event.

Insurance doesn't normally cover pandemics.

Parent comment is probably referring more to the next monster natural disaster(s) racking up many billions in damages: hurricane, flood, earthquake, etc. The insurance business feels good when it's bringing in payments and not paying out much.

Insurance covers insurable events, some of them may be triggered by a pandemic, and some of those might be excluded. Check your fine print.

* Life insurance is probably going to take a hit. My life insurance doesn't mention pandemic or acts of god. Suicide yes. Pandemic no.

* Auto insurance is probably going to be marginally more profitable as miles driven drop.

* Home/Property isn't likely to be heavily affected.

* Health insurance is going to take a major hit. Probably in the bailout/re-capitalization range.

* Reinsurance is going to be dependent on the specific underwriting that's been done.

* Travel insurance. Ha. This is an extinction level event for them, so it's excluded.

Health insurance is probably going to be fine, because there will be lots of government money flowing into healthcare to drop prices (free tests etc). And total hospital bed capacity hasn't majorly increased (as in: nowhere near 2x), so the total cost they can incur per month isn't significantly higher. May even be slightly lower per patient because most complex treatments have been put on-hold.

Life insurance may also be profiting depending on the structure of the portfolio. Differs a bit per market but some common products pay a monthly amount from let's say 65 until death. A virus might decrease life expectancy of that group from 81 to 77 or something, a 25% drop in required payouts. On the other hand they're often heavily invested in the financial markets which took a big hit. So could go both ways.

You might have noticed ICUs are swamped and nurses are working around the clock? Hospitals do charge for that.

Health insurance will be fine. There was a study (no citation handy) that looked at severe flu seasons, and their impact on health insurers. Barely a blip.

Remember, ~80% of people have minimal symptoms after being infected with SARS-CoV-2.

You can therefore absorb a lot of care for 20%, assuming most people are insured...

This is going to be 20 times worse than the worst flu seasons.

I don't see how that can be the case.

Here's the data from DC on the Flu https://www.cdc.gov/flu/about/burden/past-seasons.html

Over the past decade a low season of 140,000 hospitalizations to a high of 810,000. For this to be 20x worse you'd need each stay from the flu to be 1 day and each for COVID-19 to be 20, and then we'd need to reach somewhere between 700,000 - 4,000,000 positive COVID-19 cases in the U.S. under the current testing methods which leads to approximately a 20% hospitalization rate.

On the death calculation COVID-19 would need to kill 240,000 to 1.2M for a 20x outcome. This is more possible if you go to the low end and we limited mitigation efforts (which we aren't).

Flu, like automobile accidents, are a massive impact on society though because they are now a normal occurrence do not get the media coverage.

> Flu, like automobile accidents, are a massive impact on society though because they are now a normal occurrence do not get the media coverage.

The flu gets a lot less coverage, because it mostly kills people who were going to die anyway. This is not true of automobile accidents, and they are correspondingly viewed as much worse.

There was a brief look at this on EconLog: https://www.econlib.org/who-are-all-the-people-dying-of-flu/

> Thus, Americans 85+ experience almost over 40% of all combined flu/pneumonia mortality, while Americans under 45 years old endure less than 2%. The main reason we rarely hear about flu deaths is that when people die of flu, folks at the funeral probably call “old age” the cause of death. Logically, this isn’t even wrong, because there’s joint causation; if the deceased weren’t old, they almost certainly wouldn’t have died of flu. And philosophically, you can accurately say that most people who die of flu would soon have died of something else.

We had 500 deaths yesterday. We’re doubling ever 2-3 days. I’ll take 3 days.

At the end of next week, we’ll have 2000 deaths a day. At the end of two weeks, we’ll have almost 10,000. We’ll have 200k dead in roughly three weeks.

https://www.xkcd.com/605/

Posting this update half way through the 3-week period. We are now at 16,510 deaths total(1) on April 9th.

I'm not suggesting COVID-19 isn't bad, it just isn't 20x flu bad with the mitigation we have in place.

We won't really understand the statistics on this until a year or more out when analysis of all the death certificates come in and we can look at how 2020 is different, i.e. for each COVID-19 how many fewer flu deaths did we have? etc.

(1) https://www.worldometers.info/coronavirus/country/us/

Well according to Cuomo’s March 26 briefing the ventilator situation maybe nearly that bad. https://www.bloomberg.com/news/articles/2020-03-26/n-y-death... 3-4 days for non-covid versus 11-21 days for covid.

Yeah, it's certainly more prolonged though even the extreme on that range is a 7x delta.

This would lead needing 2 million to 12 million positive COVID-19 tests with 20% hospitalization rate to get a 20x outcome versus our flu seasons.

Health insurance in the US are expecting to have a bumper year this year because all of the elective operations have been cancelled.

They have raised their expectations for next year because the pandemic gives them an excuse to increase prices and as we know every medical procedure represents profit to them and the pandemic will lead to a glut of said procedures next year.

> My life insurance doesn't mention pandemic or acts of god. Suicide yes. Pandemic no.

I'd be pretty surprised if this wasn't true. Who's taking out life insurance exclusively for predictable causes of death? You don't insure those, you avoid them.

"Acts of god" are most of the reason you'd want life insurance in the first place.

Exclusively? No. But I think suicide is covered on some policies after a waiting period.

Usually a year. Just checked my policy from pacific life, it has a 1 year cliff (hah) for suicide.

I don't understand. If they cover dying from flu why does it matter if it's pandemic or not?

I don't think life insurance will take a hit. The large majority of deaths we're seeing are among the very ill, ie folks who already had a high short term chance of dying. Within a couple years the insurers would have paid out all that money anyway. And correct me if I'm wrong but most of the time you'd only have life insurance if you have dependents to look after, ie when you're 40 and not when you're 80. The cost of life insurance for an 80yo with 3 illnesses must be prohibitive.

Correct. In fact based on demographic data locally (Canada), deaths from motor incidents have come down enough to offset Corona deaths. Ergo, it's cheaper to have a pandemic.

I'm thinking business continuity insurance would be a big hit if they have a lot of that on their reinsurance side.

> Buffett prizes financial security and has vowed to never exhaust Berkshire's cash pile.

Supreme risk management, risking only a fraction of the cash. Do the same and there will always be opportunities to buy on any valley/dive. The biggest the valley/dive, the biggest buying opportunity.

I admire his motto: http://enrichwise.com/wp-content/uploads/2014/08/Fantastic-W...

and he keeps proving it right!

And his relevant corollary to be "Fearful when others are greedy and greedy when others are fearful.”

That's assuming they are for sale at the current market cap which they are not really. Otherwise I think he'd kinda like to own McDonnalds.

Can someone with more experience explain what does "cash" mean in this context? Is it saying that 100 billion isn't actively invested and is simply being depreciated by inflation? It's said it's tied up in 'short-term investments' but that's not clear to someone who doesn't have knowledge of this domain.

Berkshire has almost all of their cash in short term treasury bills. It's a cash equivalent, because you don't want to keep 100bn in a checking account, and it does get hurt by inflation. But that's OK, because making a purchase when the time is right will more than make up for it. Cash is still king, in Buffet's world.

I'd just add that in addition to that $128B in liquid Treasury securities (which is what "cash" means when we talk about such large amounts) they also have about $103B debt that cancels their net cash-debt position to about $25B. The debt has long maturity, though, so most of the cash can be deployed immediately.

Also, Buffett applies something like the Taleb's "barbell method" to his holdings: he never buys high grade corporate bonds. It either has to be something "distressed", a convertible, a preferred stock, warrants, common stock well below intrinsic value, best if they call him and beg him to buy, i.e. something with high potential returns, or "pristine" and boring assets, like govt securities.

As he says himself - when things get bad everything freezes. In 2008 even Berkshire couldn't get credit.

Most of Berkeshire's debt is associated with their utility businesses which have very low risk and low margins because of safe multi-decade contracts.

> $125 billion in cash, cash equivalents[1], and short-term investments[2] in US Treasuries[3] at the end of December

[1]: https://www.investopedia.com/terms/c/cashandcashequivalents.... [2]: https://www.investopedia.com/terms/s/shorterminvestments.asp [3]: https://www.investopedia.com/terms/o/off-the-runtreasuries.a...

Regarding [3] the difference between ON-the vs OFF-the, is that the "on-the-run treasuries have a specific maturity date.

It generally means invested in instruments that are considered completely safe and completely liquid, such as US Treasury bills.

They can make a small return on your investment, but they won't typically beat inflation.

Sure, it’s likely a mixture of cash, short term treasuries, i.e. TBills and a few other things. None are volatile, and short term investments generally exist to protect against inflation, with an easy eject button if you need to convert to cash quickly.

The US government gives out debt of varying duration. Generally speaking, the shorter the duration the lower the interest rate and the higher the liquidity ("ease of conversion to cash").

Treasury bills are is debt with a duration of less than a year and BRK has a lot of those:

https://www.investopedia.com/terms/t/treasurybill.asp

Target (TGT) is, overall, a well-run company with a straightforward business model. It would be a smart move to buy them at a discount because either they continue to expand into other markets and/or they could sold to the likes of Walmart or Amazon sometime in the future.

Improvements: They do need to move more towards an online/in-store-equivalency platform model like Walmart, maybe with a handheld scanner self-checkout and loss-prevention AI. Heck, skip the stores entirely with delivery only-sales might be a better idea to eliminate shrinkage.

I can't see WB buying any other companies on the list besides GE or 3M because it's not clear the others are diversified, defensible, undisruptable and simple enough.

... but is probably smart enough to buy other 10% of our lives. look at this and tell me this man got no 20/20 forward vision https://news.ycombinator.com/item?id=22401875

It's too early to buy, people are still greedy.

At the level Berkshire operates at the calculation is different from generically investing in the market. Buffet buys companies, or big chunks of them, so what matters is the risk profile and liquidity of the individual company. Also when he buys by definition he will create the bottom price of the stock. Him buying will make it go up, so he can’t wait until the price hits bottom, he waits until he has the best buying opportunity and that includes beating other potential buyout investors to the deal so what they are doing matters too.

I do agree though, prices have recovered a bit due to the big stimulus package, but there is a lot more bad news to come and markets will react to that.

Okay since you opened the door to playing "call the bottom" where do you think it will be? I'll swag first. The end will be in sight when the US new case rate hits its inflection point and begins decreasing. From that you can sorta tell when things will settle down biology-wise.

So that's a couple of weeks away, according to the projections I posted yesterday. Peak deaths in the US are estimated for 15 April.

I'm still reading things in other US-centric forums (automotive, oil & gas industry) where people are remarking about "hysteria" or acknowledging current numbers but implicitly assuming that the increase in cases is zero.

So I think it's very dangerous to assume that prices are accurate if probably millions of people haven't caught up to reality yet. One thing that I read is that the current rebound might have been largely driven by automatic rebalancing of institutional investors who split between stocks and bonds.

This is an excellent point.

Sure, but that doesn’t necessarily coincide with peak economic impact. We may be looking at some traumatic bankruptcies and economic disruptions, and those will likely lag the medical impact, in some cases by quite a lot. Some of the habits and behaviour changes people are developing may stick, causing severe problems for some companies or even whole industries, and this will play out over a long time. So I can’t say when we will hit bottom, there are too many uncertainties. Also the bottom for some industries and companies will differ from others.

Whatever Warren Buffet does at this stage is going to be a success. Everything he does becomes self-fulfilling. People like him don't predict market movements, they cause them.

That's way too reductive. Yes, his reputation helps tremendously, but even as a complete unknown he would still be a world-class investor.

He actually did better when he was a complete unknown. Berkshire is huge now because Buffett averaged 20% annual gains for decades. Now his returns are down because it's hard to find good deals on companies big enough to matter to him.

It's that time of the decade, when you can write this article , but a lot of companies have that cash.

Question is would it make sense for Buffet or others to buy them - and would they sell?

Behold the power of Buy-and-Hold.

Also, watch financial forums for posters who were bashing Buffett relentlessly the past few years. They are oddly silent now!

maybe he's got the cash - but i'm doubtful he would blow it on them. As he's indicated, he's gotten better returns from buying parts of companies than buying them out whole. I would be surprised if he does any M&A during this downturn, likely instead opting to invest more into the positions he's already got.

If real estate is included in the valuation McDonalds ftw.

And the sense not to.

Warren needs to give his employees a raise.

I knew I'd get a few down votes, but facts are facts and we can't down vote them:

https://www.wealthdaily.com/articles/wages-vs-corporate-prof...

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