5 ms·

Is there a stated reason that a handful of the biggest companies are sitting on cash piles greater than the yearly GDP of mid sized nations? Are they convinced

Is there a stated reason that a handful of the biggest companies are sitting on cash piles greater than the yearly GDP of mid sized nations? Are they convinced that a more muscular re-investment in their businesses won't provide returns greater than interest? Is there a tax advantage here that pushes companies to hoard? Is the C-suite set really worried about the greater economic environment going forward and so want these cash piles as a buffer to get through coming lean times?

idontwantthis 3y ago
They can get guaranteed at least 4% on it right now.
misja111 3y ago
It's not really cash, the money is invested in (mostly US) government bonds. The reason it's in bonds and not in shares, is simply that bonds nowadays give a pretty decent revenue.
panax 3y ago
For Berkshire in particular most of this cash is part of the float for their insurance business which they need to have on hand and available to pay out for potential claims and they will only ever keep that part of the float in cash equivalents. Still they have a large amount of cash beyond what they need for the float which they attribute to lack of opportunities to invest in given their immense size and investing style. They also want to be able to be in a strong position in a downturn or crisis situation. Hoarding all that excess cash still presents a major opportunity cost for them, although now not as much as before with higher interest rates.
calpaterson 3y ago
> Is there a stated reason that a handful of the biggest companies are sitting on cash piles greater than the yearly GDP of mid sized nations? The stated reason from Berkshire is that the management thinks that there are too few investment opportunities priced (far enough) below their value to be worth buying. Presumably though he thinks Berkshire stock is an exception though - and priced too low - else it would be reasonable to buy some of that back.
soared 3y ago
A rosy view is that these companies learned a lot from Covid - that economic landscapes can change extremely quickly and they need to be prepared to endure downturns, but also have cash on hand to take advantage of opportunity (like hiring en masse when they see the need).
matwood 3y ago
Some companies, like Apple, simply make so much money that it's hard to invest it all in new business. A large amount of the money is also overseas so there are tax implications during repatriation. Many investors also prefer that a company like Apple buy back shares rather than pay out a dividend so the investors can better control their own tax situation. Given how the low the interest rates were until recently, it also made sense for a company to borrow the money to buy back the shares using their cash as collateral. Keep in mind that regardless of interest rates, sitting on cash for interest is not what investors want long term. Investors can do that themselves without taking on the equity risk.
seydor 3y ago
Too long without a world war + hordes of cash being printed for decades. Capitalism is concentrative by its nature and this cold fact has never been addressed by any government, anywhere. It was only after wars that inequality flattened.

idontwantthis 3y ago

They can get guaranteed at least 4% on it right now.

misja111 3y ago

It's not really cash, the money is invested in (mostly US) government bonds. The reason it's in bonds and not in shares, is simply that bonds nowadays give a pretty decent revenue.

panax 3y ago

For Berkshire in particular most of this cash is part of the float for their insurance business which they need to have on hand and available to pay out for potential claims and they will only ever keep that part of the float in cash equivalents. Still they have a large amount of cash beyond what they need for the float which they attribute to lack of opportunities to invest in given their immense size and investing style. They also want to be able to be in a strong position in a downturn or crisis situation. Hoarding all that excess cash still presents a major opportunity cost for them, although now not as much as before with higher interest rates.

calpaterson 3y ago

> Is there a stated reason that a handful of the biggest companies are sitting on cash piles greater than the yearly GDP of mid sized nations? The stated reason from Berkshire is that the management thinks that there are too few investment opportunities priced (far enough) below their value to be worth buying. Presumably though he thinks Berkshire stock is an exception though - and priced too low - else it would be reasonable to buy some of that back.

soared 3y ago

A rosy view is that these companies learned a lot from Covid - that economic landscapes can change extremely quickly and they need to be prepared to endure downturns, but also have cash on hand to take advantage of opportunity (like hiring en masse when they see the need).

matwood 3y ago

Some companies, like Apple, simply make so much money that it's hard to invest it all in new business. A large amount of the money is also overseas so there are tax implications during repatriation. Many investors also prefer that a company like Apple buy back shares rather than pay out a dividend so the investors can better control their own tax situation. Given how the low the interest rates were until recently, it also made sense for a company to borrow the money to buy back the shares using their cash as collateral. Keep in mind that regardless of interest rates, sitting on cash for interest is not what investors want long term. Investors can do that themselves without taking on the equity risk.

seydor 3y ago

Too long without a world war + hordes of cash being printed for decades. Capitalism is concentrative by its nature and this cold fact has never been addressed by any government, anywhere. It was only after wars that inequality flattened.