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- Warren Buffett's "monstrous" cash pile signals he expects bargains to emerge, John Malone says.
- Buffett's Berkshire Hathaway held a record $157 billion of liquid assets at the end of September.
- Liberty Media's Malone touted Buffett's approach of investing cash generated from his businesses.
Warren Buffett is stockpiling record amounts of cash because he expects bargains to emerge, and he wants to be ready to pounce, John Malone says.
The famed investor's Berkshire Hathaway held an unprecedented $157 billion of cash, Treasury bills, and other liquid assets at the end of September, its recent earnings revealed. That figure is equal to about 20% of the conglomerate's $765 billion market capitalization, and 50% of its $318 billion stock portfolio at last quarter's close.
"If you look at Warren Buffett, he's sitting on a monstrous pile of cash right now," Liberty Media's CEO said during the company's recent investor day, per a transcript provided by AlphaSense/Sentieo. "So he must be expecting opportunities to show up."
Malone was replying to a question about Liberty Media's cost of capital over the next few years, given interest rates have jumped from nearly zero to over 5% since last spring. The media billionaire underscored the value of a mature, cash-generative business, as it gives owners the dry powder they need to diversify into other assets and seek out faster growth and higher investment returns.
Berkshire is a case in point, as Buffett collects the cash generated from its scores of subsidiaries, and uses it to buy stocks and other businesses that he believes will produce better returns on his money. Malone likely highlighted Buffett's cash hoard to emphasize that even though borrowing costs have surged and outperforming bonds is harder than it was 18 months ago, cut-price assets and compelling opportunities will emerge over time.
Buffett showcased the immense value of a full war chest during the 2008 financial crisis, when credit dried up and Berkshire became one of the few willing lenders in town. The investor deployed over $21 billion across five transactions with Goldman Sachs, General Electric, Dow Chemical, Mars, and Swiss Re between 2008 and 2009.
While Buffett has been collecting businesses like Geico, See's Candies, and Fruit of the Loom for nearly 60 years, Malone has specialized in corporate structuring and spinning off assets, like the Atlanta Braves baseball team this summer. Buffett's business partner, Charlie Munger, spoke out against his financial engineering on a recent podcast.
"I've never liked John Malone's extreme manipulations," he said. "I don't want to be known as the great manipulator like John Malone is. He paid less income taxes than anybody. He just pushed everything to the ideological extreme."
Malone also advised Buffett against investing in Microsoft in the mid-1980s, which may have factored into the Berkshire chief's decision to pass on one of the biggest winners in corporate history.
Regardless, Malone clearly believes Buffett is building up his cash reserves in anticipation of bargains emerging, and respects the investor's patient, prudent capital allocation.