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Warren Buffet...What are you doing with all that cash?

by Jonathan D. Poland
You know, only in the investment world would having too much cash be an issue. However, that's exactly the kind of problem Warren Buffett and shareholders of Berkshire Hathaway are facing. At this point they are drawing in around $4 billion dollars a quarter and sitting on over $45 Billion.

Given Mr. Buffett's investment style it's hard to imagine there will be any $40 billion purchases in the near future.

So when is the cash dividend coming for Berkshire Hathaway??

Given it's current earnings and the need for Mr. Buffett to rationally use Berkshire's capital to create the results investors and himself demand, it may be time for a special dividend - cash!

The problem is, even if he gives all his cash away today, he will still have between $15 and $20 Billion a year in earnings going forward. Now, Warren prides himself on buying businesses that have excellent returns on total capital, thus they do not need much money to keep on earning high rates.

What would a cash dividend do for the business?

1. It would make Warren the richest man in the world by giving him 35% of the dividend or roughly $15 Billion. I think this is a big reason he doesn't want to do this, but if he did, most of this money could be given to charities as well!

2. It would only alleviate a much bigger problem growing at Berkshire...

Will Berkshire continue to grow at 22% annually?

The answer is a resounding NO! Over the long term, even Warren has stated, that there is no way for Berkshire to keep the torrid pace that was seen in the last 50 years. BUT... maybe there is a way.

Besides the special dividend there are two main ways that he may be able to grow:

1. Pay-Up for a business like Coca-Cola, YUM Brands, or other companies that may not be DEEP DISCOUNTS, but still will allow him to use the cash BRK.A has to get true value that will last for years to come. What better investment than to buy all of Coca-Cola?

2. Invest in more public companies at a time. Buffett himself even said that given $10,000,000 he would be able to earn 50% a year on that money GUARANTEED! Well, why not just pick up more of those type investments. 50% is 50%!

But even this may seem foolish compared to just given the capital back to the shareholders and letting them put it to good use. That is, what he has said he would do all along if there wasn't a plausible way to invest it.

It is obvious from his recent gains on "derivatives" that Mr. Buffett is trying to find a way to utilize cash... I am certain he will do what's best. He always does!

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