
Warren Buffett has the cash to buy Tesla, Starbucks, or McDonald's - gscott
https://markets.businessinsider.com/news/stocks/warren-buffett-berkshire-hathaway-buy-tesla-starbucks-mcdonalds-coronavirus-selloff-2020-3-1029041432
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wiredfool
Yes. Buffet has cash. Buffet has lots of Cash for the last 10 years or so, and
has said that there has been a distinct lack of opportunity to deploy that
cash in significant chunks to buy good companies at reasonable valuations.

What I'd really like to know is the breakdown of their exposure to life
insurance (re?) vs other insurance products (auto) that might not be as badly
affected by the pandemic. He's said that they've been on a good insurance run
for a while, but that it will end at some point with a really bad event. I
don't know if this is that bad event.

~~~
markdown
Insurance doesn't normally cover pandemics.

~~~
wiredfool
Insurance covers insurable events, some of them may be triggered by a
pandemic, and some of those might be excluded. Check your fine print.

* Life insurance is probably going to take a hit. My life insurance doesn't mention pandemic or acts of god. Suicide yes. Pandemic no.

* Auto insurance is probably going to be marginally more profitable as miles driven drop.

* Home/Property isn't likely to be heavily affected.

* Health insurance is going to take a major hit. Probably in the bailout/re-capitalization range.

* Reinsurance is going to be dependent on the specific underwriting that's been done.

* Travel insurance. Ha. This is an extinction level event for them, so it's excluded.

~~~
t0mas88
Health insurance is probably going to be fine, because there will be lots of
government money flowing into healthcare to drop prices (free tests etc). And
total hospital bed capacity hasn't majorly increased (as in: nowhere near 2x),
so the total cost they can incur per month isn't significantly higher. May
even be slightly lower per patient because most complex treatments have been
put on-hold.

Life insurance may also be profiting depending on the structure of the
portfolio. Differs a bit per market but some common products pay a monthly
amount from let's say 65 until death. A virus might decrease life expectancy
of that group from 81 to 77 or something, a 25% drop in required payouts. On
the other hand they're often heavily invested in the financial markets which
took a big hit. So could go both ways.

~~~
KarlKemp
You might have noticed ICUs are swamped and nurses are working around the
clock? Hospitals do charge for that.

~~~
ethbro
Health insurance will be fine. There was a study (no citation handy) that
looked at severe flu seasons, and their impact on health insurers. Barely a
blip.

Remember, ~80% of people have minimal symptoms after being infected with SARS-
CoV-2.

You can therefore absorb a _lot_ of care for 20%, assuming most people are
insured...

~~~
empath75
This is going to be 20 times worse than the worst flu seasons.

~~~
bretpiatt
I don't see how that can be the case.

Here's the data from DC on the Flu [https://www.cdc.gov/flu/about/burden/past-
seasons.html](https://www.cdc.gov/flu/about/burden/past-seasons.html)

Over the past decade a low season of 140,000 hospitalizations to a high of
810,000. For this to be 20x worse you'd need each stay from the flu to be 1
day and each for COVID-19 to be 20, and then we'd need to reach somewhere
between 700,000 - 4,000,000 positive COVID-19 cases in the U.S. under the
current testing methods which leads to approximately a 20% hospitalization
rate.

On the death calculation COVID-19 would need to kill 240,000 to 1.2M for a 20x
outcome. This is more possible if you go to the low end and we limited
mitigation efforts (which we aren't).

Flu, like automobile accidents, are a massive impact on society though because
they are now a normal occurrence do not get the media coverage.

~~~
empath75
We had 500 deaths yesterday. We’re doubling ever 2-3 days. I’ll take 3 days.

At the end of next week, we’ll have 2000 deaths a day. At the end of two
weeks, we’ll have almost 10,000. We’ll have 200k dead in roughly three weeks.

~~~
bretpiatt
Posting this update half way through the 3-week period. We are now at 16,510
deaths total(1) on April 9th.

I'm not suggesting COVID-19 isn't bad, it just isn't 20x flu bad with the
mitigation we have in place.

We won't really understand the statistics on this until a year or more out
when analysis of all the death certificates come in and we can look at how
2020 is different, i.e. for each COVID-19 how many fewer flu deaths did we
have? etc.

(1)
[https://www.worldometers.info/coronavirus/country/us/](https://www.worldometers.info/coronavirus/country/us/)

------
HenryBemis
> Buffett prizes financial security and has vowed to never exhaust Berkshire's
> cash pile.

Supreme risk management, risking only a fraction of the cash. Do the same and
there will always be opportunities to buy on any valley/dive. The biggest the
valley/dive, the biggest buying opportunity.

I admire his motto: [http://enrichwise.com/wp-
content/uploads/2014/08/Fantastic-W...](http://enrichwise.com/wp-
content/uploads/2014/08/Fantastic-Warren-Buffett-Quotes.jpeg)

and he keeps proving it right!

~~~
imglorp
And his relevant corollary to be "Fearful when others are greedy and greedy
when others are fearful.”

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tim333
That's assuming they are for sale at the current market cap which they are not
really. Otherwise I think he'd kinda like to own McDonnalds.

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jack_pp
Can someone with more experience explain what does "cash" mean in this
context? Is it saying that 100 billion isn't actively invested and is simply
being depreciated by inflation? It's said it's tied up in 'short-term
investments' but that's not clear to someone who doesn't have knowledge of
this domain.

~~~
gizmo
Berkshire has almost all of their cash in short term treasury bills. It's a
cash equivalent, because you don't want to keep 100bn in a checking account,
and it does get hurt by inflation. But that's OK, because making a purchase
when the time is right will more than make up for it. Cash is still king, in
Buffet's world.

~~~
H8crilA
I'd just add that in addition to that $128B in liquid Treasury securities
(which is what "cash" means when we talk about such large amounts) they also
have about $103B debt that cancels their net cash-debt position to about $25B.
The debt has long maturity, though, so most of the cash can be deployed
immediately.

Also, Buffett applies something like the Taleb's "barbell method" to his
holdings: he never buys high grade corporate bonds. It either has to be
something "distressed", a convertible, a preferred stock, warrants, common
stock well below intrinsic value, best if they call him and beg him to buy,
i.e. something with high potential returns, or "pristine" and boring assets,
like govt securities.

As he says himself - when things get bad everything freezes. In 2008 even
Berkshire couldn't get credit.

~~~
sunstone
Most of Berkeshire's debt is associated with their utility businesses which
have very low risk and low margins because of safe multi-decade contracts.

------
doggodad
Target (TGT) is, overall, a well-run company with a straightforward business
model. It would be a smart move to buy them at a discount because either they
continue to expand into other markets and/or they could sold to the likes of
Walmart or Amazon sometime in the future.

Improvements: They do need to move more towards an online/in-store-equivalency
platform model like Walmart, maybe with a handheld scanner self-checkout and
loss-prevention AI. Heck, skip the stores entirely with delivery only-sales
might be a better idea to eliminate shrinkage.

I can't see WB buying any other companies on the list besides GE or 3M because
it's not clear the others are diversified, defensible, undisruptable and
simple enough.

------
altmind
... but is probably smart enough to buy other 10% of our lives. look at this
and tell me this man got no 20/20 forward vision
[https://news.ycombinator.com/item?id=22401875](https://news.ycombinator.com/item?id=22401875)

------
szczepano
It's too early to buy, people are still greedy.

~~~
simonh
At the level Berkshire operates at the calculation is different from
generically investing in the market. Buffet buys companies, or big chunks of
them, so what matters is the risk profile and liquidity of the individual
company. Also when he buys by definition he will create the bottom price of
the stock. Him buying will make it go up, so he can’t wait until the price
hits bottom, he waits until he has the best buying opportunity and that
includes beating other potential buyout investors to the deal so what they are
doing matters too.

I do agree though, prices have recovered a bit due to the big stimulus
package, but there is a lot more bad news to come and markets will react to
that.

~~~
imglorp
Okay since you opened the door to playing "call the bottom" where do you think
it will be? I'll swag first. The end will be in sight when the US new case
rate hits its inflection point and begins decreasing. From that you can sorta
tell when things will settle down biology-wise.

~~~
dhimes
So that's a couple of weeks away, according to the projections I posted
yesterday. Peak deaths in the US are estimated for 15 April.

~~~
perl4ever
I'm still reading things in other US-centric forums (automotive, oil & gas
industry) where people are remarking about "hysteria" or acknowledging current
numbers but implicitly assuming that the increase in cases is zero.

So I think it's very dangerous to assume that prices are accurate if probably
millions of people haven't caught up to reality yet. One thing that I read is
that the current rebound might have been largely driven by automatic
rebalancing of institutional investors who split between stocks and bonds.

~~~
dhimes
This is an excellent point.

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cryptica
Whatever Warren Buffet does at this stage is going to be a success. Everything
he does becomes self-fulfilling. People like him don't predict market
movements, they cause them.

~~~
gizmo
That's way too reductive. Yes, his reputation helps tremendously, but even as
a complete unknown he would still be a world-class investor.

~~~
DennisP
He actually did better when he was a complete unknown. Berkshire is huge now
because Buffett averaged 20% annual gains for decades. Now his returns are
down because it's hard to find good deals on companies big enough to matter to
him.

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Justice4Yall
It's that time of the decade, when you can write this article , but a lot of
companies have that cash.

Question is would it make sense for Buffet or others to buy them - and would
they sell?

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RickJWagner
Behold the power of Buy-and-Hold.

Also, watch financial forums for posters who were bashing Buffett relentlessly
the past few years. They are oddly silent now!

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meesterdude
maybe he's got the cash - but i'm doubtful he would blow it on them. As he's
indicated, he's gotten better returns from buying parts of companies than
buying them out whole. I would be surprised if he does any M&A during this
downturn, likely instead opting to invest more into the positions he's already
got.

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taksintikk
If real estate is included in the valuation McDonalds ftw.

------
seemslegit
And the sense not to.

------
oblib
Warren needs to give his employees a raise.

~~~
oblib
I knew I'd get a few down votes, but facts are facts and we can't down vote
them:

[https://www.wealthdaily.com/articles/wages-vs-corporate-
prof...](https://www.wealthdaily.com/articles/wages-vs-corporate-
profits/88939)

