Billionaire Warren Buffett reveals why cash is like 'oxygen' but 'not a good asset'

As one of the most successful investors of all time, Warren Buffett’s financial advice is often considered the holy grail. The 95-year-old stepped down as the CEO of Berkshire Hathaway toward the end of last year. The company had some interesting assets at this time, which included $370 billion in cash equivalents, largely held in Treasury bills. As per Buffet, the reason why he had this much cash was simply that he did not find anything worthy enough to invest in.

“It’s external circumstances,” he said, as per a report in CNBC. “Believe me, if after we get finished talking, you say, ‘I’ve got a great $100 billion new idea.’ I would say, ‘Let’s talk.’” Keeping cash brings in a good amount of interest, but in Buffett’s mind, nothing was better than productive investment. He also said that while cash was like oxygen for a portfolio, he didn’t like it as an asset.

“It’s at certain levels necessary, but cash is not a good asset,” he said. He does, however, like to keep a decent amount of cash handy for paying off obligations and as “dry powder.” “You do need oxygen, and if you’re ever without it for four or five minutes, you will learn,” he added. “And cash is that way. So you always need to have it available, because you do not know what will happen.”

Buffett has always believed in productive investments over accruing interest on cash. This sentiment was well reflected in a 2024 shareholder letter. “Berkshire shareholders can rest assured that we will forever deploy a substantial majority of their money in equities — mostly American equities, although many of these will have international operations of significance,” he wrote.

“Berkshire will never prefer ownership of cash-equivalent assets over the ownership of good businesses, whether controlled or only partially owned,” the 95-year-old added. Despite being a successful investor, Buffet has made some big mistakes in his life. It just goes to show that everyone’s human. In 2016, Berkshire Hathaway made a significant move by acquiring Precision Castparts Corp. (PCC), an aerospace manufacturing company, for $32 billion.

Buffett believed that such a large amount of money over-inflated the PCC’s value. "I made an error in judgment by being overly optimistic about PCC's potential for generating profits. No one deliberately deceived me - it was simply my own excessive optimism at play,” he said. "I made a mistake by misjudging the expected future earnings and, as a result, miscalculated the appropriate price for acquiring the business," he added.

What’s worse is that during the COVID-19 pandemic, PCC’s operations and cash flow were severely disrupted. That was the case with almost every single business around the world. The pandemic simply laid bare the consequences of Buffet’s error.

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