🧵 Warren Buffett has more cash today than ever before. We’ve seen this before 2000, before 2008, and again in 2020. Buffett says he’s not a market timer. Is that true?
Buffett is an opportunity cost calculator.
And he learned this from the master: Ben Graham.
Young Buffett, rejected by Harvard finds out Graham teaches at Columbia, so he goes there to study with him.
Buffett had read Graham’s classic, “The Intelligent Investor”—which he calls the best investing book ever written.
That’s where Graham showed us to compare the future returns of the market with less volatile investments like bonds.
Here’s the trick: Graham says to compare the earnings yield of the market with current bond yields.
Simple, right?
Let’s break it down:
• Current PE ratio of the S&P 500: about 31.
• Earnings yield: 3.2%
What about bonds?
• AAA-rated bonds: yield 4.9%.
• 1-month T-bills: yield 4.6%.
Still think Buffett is just timing the market?
He's making $14.6 billion each year—risk-free! 💸
This isn’t savvy timing; it’s brilliant asset allocation.
Let’s be honest: I don’t know what the market will do tomorrow, next month, or next year.
And neither does Buffett.
This isn’t about predicting the future; it’s about calculating opportunity costs and acting on the best opportunity.
TL;DR: Buffett’s cash reserves aren’t about market timing; they’re about smart asset allocation.
He uses insights from Ben Graham to calculate opportunity costs, positioning himself to make $14.6 billion risk-free without guessing the market's next move.