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I like Warren Buffet's phrasing as cash is a call option with no expiration date. Standard finance theory is that companies should either invest the cash themse

I like Warren Buffet's phrasing as cash is a call option with no expiration date. Standard finance theory is that companies should either invest the cash themselves, or if they can't find good investments, they should return it to their shareholders so the shareholders can deploy it elsewhere. However if the management of these companies thinks that the ultimate return on the cash they hold will be greater even given the time value of holding a zero-return investment for years then it makes sense to wait to deploy. I happen to think they're wrong and that they'd be better off returning most of the cash to their shareholders but that's for the respective boards to decide.

vessenes 10y ago
There is a real weight of gravity around that much cash. I would guess the returns of having 10x the cash of your nearest competitor, and publicizing that fact exceeds T-bill returns for instance.
- mikeyouse 10y ago
  Yeah true, and Apple's "Cash" isn't just cash but likely includes tons of government debt and other low-risk securities that return somewhere >0. They have an exceptional treasury team, which probably my favorite fun fact about Apple, operates a separate company called "Braeburn Capital". Article about their cash woes when they "only" had $120B to invest: https://www.theguardian.com/business/2012/oct/26/apple-investment-manager-braeburn-capital https://www.theguardian.com/business/2012/oct/26/apple-inves...
bduerst 10y ago
Apple was an outlier in this sense, because for the longest time they were sitting on a mountain of cash. They ended up paying part of that out as dividends when Cook became CEO.
robbiemitchell 10y ago
Something I don't understand: why would a company ever return cash if they don't have to? Isn't it better to have it than not?
- ASinclair 10y ago
  Well they do have to return the cash if the shareholders demand it since the company doesn't own itself, the shareholders own it.
- tuna-piano 10y ago
  Think of the "company" as fictitious. All the company is, is the combined assets of shareholders. So the shareholders decide if they would rather have the cash in the corporate entity or in their own pockets.
- Dwolb 10y ago
  There are several reasons. A couple could be shareholders believe they have better uses for the money elsewhere and to keep management disciplined (i.e. too much cash makes management reckless). Think about if you were a partial owner of two businesses. One business has a lot of cash but isn't growing. The other business is growing but doesn't have a lot of cash. As a partial owner, what would you do?
- sharemywin 10y ago
  Because it used to be that companies that don't return dividends back to share holders weren't worth much. What's interesting is microsoft's sales in 2005 and 2015 are both 12B. The other companies at least have none flat revenue numbers.
- roymurdock 10y ago
  If a company has excess cash, and few good projects (NPV>0), returning money to stockholders (dividends or stock repurchases) is GOOD. If a company does not have excess cash, and/or has several good projects (NPV>0), returning money to stockholders (dividends or stock repurchases) is BAD. Read more here: http://pages.stern.nyu.edu/~adamodar/New_Home_Page/lectures/dividend.html http://pages.stern.nyu.edu/~adamodar/New_Home_Page/lectures/...
- adamlett 10y ago
  Shareholders get nervous when companies hold too much cash, because they fear that management will blow it on stupid acquisitions. This ultimately hurts the value of the company. Management is usually granted stock and/or stock options, which aligns their interest with the other stock owners.
Nokinside 10y ago
Warren Buffet's genius idea is to have his insurance companies producing steady flow of incoming cash in both good and bad times for him to invest. He has always cash coming in. Berkshire Hathaway has cut banks and finance sector and their margins out from Buffets investing scheme. MS, Apple and Google are in different situation. They want to hold cash to protect and grow their network externalities. It's zero sum game in long term.

vessenes 10y ago

There is a real weight of gravity around that much cash. I would guess the returns of having 10x the cash of your nearest competitor, and publicizing that fact exceeds T-bill returns for instance.

mikeyouse 10y ago
Yeah true, and Apple's "Cash" isn't just cash but likely includes tons of government debt and other low-risk securities that return somewhere >0. They have an exceptional treasury team, which probably my favorite fun fact about Apple, operates a separate company called "Braeburn Capital". Article about their cash woes when they "only" had $120B to invest: https://www.theguardian.com/business/2012/oct/26/apple-investment-manager-braeburn-capital https://www.theguardian.com/business/2012/oct/26/apple-inves...

bduerst 10y ago

Apple was an outlier in this sense, because for the longest time they were sitting on a mountain of cash. They ended up paying part of that out as dividends when Cook became CEO.

robbiemitchell 10y ago

Something I don't understand: why would a company ever return cash if they don't have to? Isn't it better to have it than not?

ASinclair 10y ago
Well they do have to return the cash if the shareholders demand it since the company doesn't own itself, the shareholders own it.
tuna-piano 10y ago
Think of the "company" as fictitious. All the company is, is the combined assets of shareholders. So the shareholders decide if they would rather have the cash in the corporate entity or in their own pockets.
Dwolb 10y ago
There are several reasons. A couple could be shareholders believe they have better uses for the money elsewhere and to keep management disciplined (i.e. too much cash makes management reckless). Think about if you were a partial owner of two businesses. One business has a lot of cash but isn't growing. The other business is growing but doesn't have a lot of cash. As a partial owner, what would you do?
sharemywin 10y ago
Because it used to be that companies that don't return dividends back to share holders weren't worth much. What's interesting is microsoft's sales in 2005 and 2015 are both 12B. The other companies at least have none flat revenue numbers.
roymurdock 10y ago
If a company has excess cash, and few good projects (NPV>0), returning money to stockholders (dividends or stock repurchases) is GOOD. If a company does not have excess cash, and/or has several good projects (NPV>0), returning money to stockholders (dividends or stock repurchases) is BAD. Read more here: http://pages.stern.nyu.edu/~adamodar/New_Home_Page/lectures/dividend.html http://pages.stern.nyu.edu/~adamodar/New_Home_Page/lectures/...
adamlett 10y ago
Shareholders get nervous when companies hold too much cash, because they fear that management will blow it on stupid acquisitions. This ultimately hurts the value of the company. Management is usually granted stock and/or stock options, which aligns their interest with the other stock owners.

Nokinside 10y ago

Warren Buffet's genius idea is to have his insurance companies producing steady flow of incoming cash in both good and bad times for him to invest. He has always cash coming in. Berkshire Hathaway has cut banks and finance sector and their margins out from Buffets investing scheme. MS, Apple and Google are in different situation. They want to hold cash to protect and grow their network externalities. It's zero sum game in long term.