Inside a private classroom on a rainy day, the old man Warren Buffett sat with students and spoke about on markets. It was 2013 and the economy and market was just starting to roar back to its highs. For those who remember 2013, it was a sigh of relief. You could feel it in the air. Markets were truly emerging from the Financial Crisis and Eurozone Debt Crisis.

Buffett, in mid-conversation, started to talk about cash and what it means to his portfolio. Buffett always holds a lot of cash, and generally a large group of people make fun of him for that. They often think he is missing out on great opportunities. Here is what he would tell people who say that:

“Berkshire Hathaway always has $20 billion or more in cash. It sounds crazy, never need anything like it, but someday in the next 100 years when the world stops again, we will be ready. There will be some incident, it could be tomorrow. At that time, you need cash. Cash at that time is like oxygen. When you don’t need it, you don’t notice it. When you do need it, it’s the only thing you need. We operate from a level of liquidity that no one else does. We don’t want to operate on bank lines.

There is no authority for the US Treasury to guarantee money market funds. Their power comes from Congress. Paulson set up an exchange stabilization fund in September 2008 to guarantee money market funds. This stopped the run of money market funds and it was all over. Something like that will happen maybe a couple of times in your lifetime. Two things when it happens again:

1. Don’t let it ruin you!
2. And if you have money/guts, you’ll have an opportunity to buy things at prices that don’t make sense!

Fear spreads fast, it is contagious. Doesn’t have anything to do with IQ. Confidence only comes back one at a time, not en masse. There are periods when fear paralyzes the investment world. You don’t want to owe money at that time, and if you have money then you want to buy at those times.”

Warren Buffett at the University of Maryland (notes and a talk with students)

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