Warren Buffett's Berkshire Hathaway has a record $137 billion cash pile. Here's why the investor will be frustrated by that fact.

The famed investor always holds some cash to weather emergencies and capitalize during crises.
However, Buffett dislikes having too much cash because it loses value over time and he views businesses as better investments.
"Whether the currency a century from now is based on gold, seashells, shark teeth, or a piece of paper (as today), people will be willing to exchange a couple of minutes of their daily labor for a Coca-Cola or some See's peanut brittle," Buffett said in his 2011 shareholder letter.
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Warren Buffett's Berkshire Hathaway boasted a record $137 billion cash pile at the end of March . The famed investor defended the hoard at Berkshire's recent annual meeting , but he will be frustrated by its size if his past critiques of cash are any indication.

A pandemic piggy bank

Buffett underscored the value of Berkshire's cash during the virtual gathering on Saturday.

"We really want to be prepared for anything," he said . "We never want to be dependent, not only on the kindness of strangers, but the kindness of friends."

Berkshire's mountain of US Treasuries generates a minimal return, Buffett said, but its money is safe.

"Those treasury bills are paying us virtually nothing," he said. "They're a terrible investment over time, but they are the one thing that when opportunity arises, [we can use] to pay for those opportunities. The rest of the world may have stopped."

Buffett added that Berkshire's cash pile isn't overkill given the cataclysmic risks posed by the coronavirus pandemic.

"The position isn't that huge when I look at worst-case possibilities," he said.

A safety net and a war chest

Buffett inherited his "extreme aversion to financial adventurism" from his grandfather, Ernest Buffett, he explained in his 2010 shareholder letter . Both Buffett and his longtime partner, Berkshire vice chairman Charlie Munger, worked in Ernest's grocery store in Omaha as youths.

"I feel that everyone should have a reserve," Ernest wrote in a letter to Buffett's uncle in 1939, which came with $1,000.

"You might feel that this should be invested and bring you an income," Ernest continued. "Forget it the mental satisfaction of having $1,000 laid away where you can put your hands on it, is worth more than what interest it might bring, especially if you have the investment in something that you could not realize on quickly."

Ernest "understood the importance of liquidity as a condition for assured survival," Buffett said in his 2010 letter. The investor has scaled up his grandfather's philosophy for Berkshire, ensuring the company holds at least $20 billion in cash at all times, both for his peace of mind and to pursue opportunities in times of crisis.

"Having loads of liquidity ... lets us sleep well," he said in his 2009 shareholder letter . "During the episodes of financial chaos that occasionally erupt in our economy, we will be equipped both financially and emotionally to play offense while others scramble for survival."

Buffett emphasized the power of cash in a crisis.

"We've put a lot of money to work during the chaos of the last two years," he said. "It's been an ideal period for investors: A climate of fear is their best friend."

Cash is not king

Buffett prizes having an emergency fund and plenty of dry powder during a downturn. However, he still dislikes holding too much cash.

"Cash never makes us happy," the Berkshire boss said in his 1998 shareholder letter . "We don't enjoy sitting on $43 billion of cash equivalents that are earning paltry returns," he wrote in his 2004 letter .

In his 2009 letter, penned during the financial crisis, Buffett warned investors against seeking shelter in cash and government bonds.

"They regard their judgment confirmed when they hear commentators proclaim 'cash is king,' even though that wonderful cash is earning close to nothing and will surely find its purchasing power eroded over time," he said.

Buffett classified bank deposits, bonds, mortgages, and other currency-denominated investments as "among the most dangerous of assets" in his 2011 shareholder letter . Inflation, low interest rates, and personal income taxes mean those types of assets yield no real income, he said.

"Over the past century these instruments have destroyed the purchasing power of investors in many countries, even as the holders continued to receive timely payments of interest and principal," Buffett said. "This ugly result, moreover, will forever recur."

Instead, Buffett argued that productive assets such as businesses, farms, and real estate are safer and more lucrative investments than cash, gold, and other assets.

"Whether the currency a century from now is based on gold, seashells, shark teeth, or a piece of paper (as today), people will be willing to exchange a couple of minutes of their daily labor for a Coca-Cola or some See's peanut brittle," he said.

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