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I guess I don't understand the mindset in which having extra cash is some sort of problem to solve. Apple, Microsoft, Cisco, Oracle, Qualcomm, etc. all have lar

I guess I don't understand the mindset in which having extra cash is some sort of problem to solve. Apple, Microsoft, Cisco, Oracle, Qualcomm, etc. all have large stockpiles of cash and no one thinks of them as hedge funds, right?

nostrademons 8y ago
Cash is pretty much the only guaranteed losing long-term investment out there, other than gambling & used cars. The Fed has a target inflation rate of 2% - that means that if they do their job correctly, every year your cash stash will be worth 2% less. If they do it incorrectly it can lose value even more quickly. Big tech companies hoard cash because much of their business model depends upon being able to buy up potential competitors before the competitor can take over their market, and they need liquidity to do it because things move very fast in tech and delaying even a couple weeks can mean the price goes up $100M. That's why you see purchases like Instagram for $1B, YouTube for $1.5B, DoubleClick for $3B, or WhatsApp for $19B. And they often make rates of return far, far in excess of the purchase price of these - YouTube is estimated as being worth $75B now. They're not holding cash for the sake of holding cash, they're holding cash as a punctuated-equilibrium investment strategy where they spend a lot when the right opportunity comes along and sit back and wait for the right opportunity to come along the rest of the time.
- paulddraper 8y ago
  Yes, though most of the purchase is usually paid in stock. They didn't just write a check for $19B.
  - nostrademons 8y ago
    Usually true, but they want the optionality of being able to purchase in cash if the buyer demands it. DoubleClick ($3.1B) and Motorola ($12.5B) were both purchased for cash. Not many buyers have $12B in cash sitting around.
    - deleted 8y ago
      [deleted]
pmart123 8y ago
Apple actually does have a quasi hedge fund to manage its cash position: https://qz.com/393093/the-mysterious-fund-in-the-desert-that-manages-apples-cash/ https://qz.com/393093/the-mysterious-fund-in-the-desert-that... Too much cash can also lead to behavioral finance issues down the road as well such as companies making ill-fated acquisitions such as Microsoft did under Ballmer's helm.
- tboyd47 8y ago
  Excuse me if this sounds tongue-in-cheek, but is "behavioral finance issues" another way to say that the people placed in charge of the large pile of cash can't be trusted with it? Are you saying the solution to that is to just not to hold any cash?
- longerthoughts 8y ago
  That fund does not remotely resemble a hedge fund. They strictly invest in low-risk securities (e.g. highly rated government bonds) to generate a modest return and minimize loss against inflation.

nostrademons 8y ago

Cash is pretty much the only guaranteed losing long-term investment out there, other than gambling & used cars. The Fed has a target inflation rate of 2% - that means that if they do their job correctly, every year your cash stash will be worth 2% less. If they do it incorrectly it can lose value even more quickly. Big tech companies hoard cash because much of their business model depends upon being able to buy up potential competitors before the competitor can take over their market, and they need liquidity to do it because things move very fast in tech and delaying even a couple weeks can mean the price goes up $100M. That's why you see purchases like Instagram for $1B, YouTube for $1.5B, DoubleClick for $3B, or WhatsApp for $19B. And they often make rates of return far, far in excess of the purchase price of these - YouTube is estimated as being worth $75B now. They're not holding cash for the sake of holding cash, they're holding cash as a punctuated-equilibrium investment strategy where they spend a lot when the right opportunity comes along and sit back and wait for the right opportunity to come along the rest of the time.

paulddraper 8y ago
Yes, though most of the purchase is usually paid in stock. They didn't just write a check for $19B.
- nostrademons 8y ago
  Usually true, but they want the optionality of being able to purchase in cash if the buyer demands it. DoubleClick ($3.1B) and Motorola ($12.5B) were both purchased for cash. Not many buyers have $12B in cash sitting around.
  - deleted 8y ago
    [deleted]

pmart123 8y ago

Apple actually does have a quasi hedge fund to manage its cash position: https://qz.com/393093/the-mysterious-fund-in-the-desert-that-manages-apples-cash/ https://qz.com/393093/the-mysterious-fund-in-the-desert-that... Too much cash can also lead to behavioral finance issues down the road as well such as companies making ill-fated acquisitions such as Microsoft did under Ballmer's helm.

tboyd47 8y ago
Excuse me if this sounds tongue-in-cheek, but is "behavioral finance issues" another way to say that the people placed in charge of the large pile of cash can't be trusted with it? Are you saying the solution to that is to just not to hold any cash?
longerthoughts 8y ago
That fund does not remotely resemble a hedge fund. They strictly invest in low-risk securities (e.g. highly rated government bonds) to generate a modest return and minimize loss against inflation.