To say that Warren Buffett knows a good deal is a bit of an understatement--maybe even a cliché. That's why it looks like bad news that his company, Berkshire Hathaway, is sitting on a record $122 billion in cash, and actually sold more investments than it bought in the first half of the year, according to Bloomberg.
Of course, most of us would be perfectly happy to see those numbers followed by a long string of zeros attached to our bank account, but when your job is to deliver huge investment returns, sitting on cash is actually a big problem.
That's because if you're pulling out more cash than you put in, it's probably because you believe that the market is about to head in a direction you'd rather not go. And that's not only a problem but a bad sign, not just for Warren Buffett but for all of us.
But I also think there's a lesson here for entrepreneurs that has nothing to do with stock markets or piles of cash. It has everything to do with opportunity.
But first, the cash.
A lot of cash
To be sure, Berkshire Hathaway isn't the only company sitting on huge piles of cash. Both Google and Apple have more than $100 billion in cash, or cash equivalent assets.
But, in Buffett's case, he is known for his distaste for holding on to large hoards of cash. As he famously stated in his 1998 letter to shareholders: "Cash does not make us happy."
That was in response to his view that there were few good opportunities at the time to make a purchase or sizable investment, saying: "Charlie [Munger] and I will continue our search for large equity investments or, better yet, a really major business acquisition that would absorb our liquid assets. Currently, however, we see nothing on the horizon."
At the time, the cash pile was $15 billion. So, the fact that the company is sitting on an amount nine times greater than that today could be seen as an indication that there's a big problem.
Bad news or a good lesson?
Here's why: If Berkshire Hathaway is stockpiling cash because it doesn't see any good deals right now, or because it thinks the market is about to fall, that would be bad news.
That may be true, but I actually think it's a good lesson--one to which every entrepreneur should pay attention.
Warren Buffett is an investor. That's what he does. His investors expect him to deliver outstanding returns--and he has a long track record of doing just that. That expectation, however, means that Buffett and his company have to make bigger and bigger deals that deliver better and better returns. What used to be considered a huge win barely moves the needle once you're the size of Berkshire Hathaway.
The same thing is true for your business. You might not be an investment company or large conglomerate with a penchant for buying up other companies, but the idea is still the same.
When you first start, every decision you make has a huge impact on your business. Every risk you take that turns out to be a winner pays off big time. The losers end up hurting even more. But as you grow, it takes more and more to move the needle.
When that happens, it can be tempting to make moves just because you feel like you should be doing something--anything. Just because something looks really good right now, it doesn't mean it's the best opportunity for your business.
Finding the right next thing
And by opportunity, I don't mean buying stocks. I mean ideas and people and products. I mean the temptation to move your company in new directions or chase after the next big thing.
As an entrepreneur, it's tempting to ride the wave right now, or to move the needle in a big way. In reality, however, every big wave eventually crashes into the shore.
Sometimes standing on the sidelines isn't a bad thing. Sometimes, your job is to see what everyone else thinks is a good idea, and have the wisdom and patience to wait for something better.
Which happens to be exactly what people generally associate with Warren Buffett.
Maybe it's not all that bad news after all. Just a good lesson.