When the world’s second richest man holds almost $100 billion in cash in his company, it’s worth taking note.
In Today’s Volatile World, It’s No Surprise That Billionaires And Large Fund Managers Hold Vast Cash Reserves
What Have Black Swans Got To Do With Cash?
The world’s most elite investors are concerned about the current risk landscape. As a result, they’re buying gold, stocking up on cash and making other hedges to protect their wealth.
According to Bloomberg, Warren Buffett's company Berkshire Hathaway has a record high cash pile of $99.7 billion. The record high cash reserve is largely due to fewer acquisition opportunities, but also because of increasing geopolitical risks.
It seems Buffett is not alone. Many UK fund managers are facing similar issues, with some holding up to 20 per cent of their portfolios in cash due to the lack of opportunities in the market.
In many ways, it’s completely understandable.
Since 2016, the world has become an even more unpredictable place. Two unthinkable political events occurred back-to-back against overwhelming odds:
1. The UK voted to leave the European Union.
2. Donald Trump was elected president of the USA.
These are the latest in a long line of unexpected events that have arguably signalled a new era of populism and turbulence. It’s left some of the world’s most elite investors scrambling to protect their wealth, turning to cash as a safe haven.
Such dramatic events are often referred to as ‘Black Swans’. It’s when an occurrence deviates beyond what is normally expected of a situation. It’s extremely difficult to predict. The term was popularised by Nassim Nicholas Taleb, a finance professor, writer and former Wall Street trader.
Click the image below to watch a very short video explaining about Black Swan events. On the same page is an article highlighting the implications for markets and investing.
Cash And Gold Are Two Valuable Hedges Against Black Swans
With high political risk and outcomes being extremely uncertain, the world’s smartest investors are not leaving much to chance. They are increasing their portfolio allocations to assets that can preserve wealth such as cash and gold, even in times of political crisis.
The wonderfully detailed illustration below covers the geopolitical risks that now have the world’s most elite investors concerned, and what moves they are making to protect themselves from Black Swans.
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