Thread by @trengriffin

1/ Berkshire ended September with a record $128.2B of cash, despite repurchasing $700M of BRK stock in the quarter."

The optionality of cash allows holders to buy assets from people who were short volatility when a crisis hits. Not a free option though. google.com/amp/s/25iq.com…

2/ "Warren is guessing he’ll have an opportunity to put capital out at high rates of return, so he’s not willing to put it out at < 10% now. But if we knew interest rates would stay at 1%, we’d change. Our hurdles reflect our estimate of opportunity costs.”

Charlie Munger

3/ People regularly contact me before a meeting with Munger about questions they should ask. Among my questions is always: "Ask him for a update on his current estimate of opportunity costs.”

Cost of capital is better than "what could be produced by our 2nd best idea." Buffett

4/ "We don’t have [a hurdle rate] – we sort of do – but it interferes with logical comparison. If I know I have something that yields 8% for sure, and something else came along at 7%, I’d reject it instantly. Everything is a function of opportunity cost.”

Warren Buffett

5/ "The most important item over time in valuation is obviously interest rates. Any investment is worth all the cash you're going to get out between now and judgment day discounted back."

Cash ≠ earnings. google.com/amp/s/www.cnbc…

6/ Sideshow Bob: These companies need to start earning a profit!"

but also:

"Companies are too focused on the short term!"

Smithers: "Expected long-term cash flows, discounted by the cost of capital—not reported earnings—determine stock prices."