You could be forgiven for not noticing with pages of self congratulatory pagentry like this:
Unquestionably, some people have become very rich through the use of borrowed money. However, that’s also been a way to get very poor…
But leverage is addictive. Once having profited from its wonders, very few people retreat to more conservative practices. And as we all learned in third grade – and some relearned in 2008 – any series of positive numbers, however impressive the numbers may be, evaporates when multiplied by a single zero. History tells us that leverage all too often produces zeroes, even when it is employed by very smart people…
On the facing page you can read a letter sent in 1939 by Ernest to his youngest son, my Uncle Fred. Similar letters went to his other four children. I still have the letter sent to my Aunt Alice, which I found – along with $1,000 of cash – when, as executor of her estate, I opened her safe deposit box in 1970. Ernest never went to business school – he never in fact finished high school – but he understood the importance of liquidity as a condition for assured survival. At Berkshire, we have taken his $1,000 solution a bit further and have pledged that we will hold at least $10 billion of cash…
Flip over a few pages. Now, what do you see on the balance sheet?
Cash and cash equivalents:
(2010) $ 34,767
(2009) $ 28,223
yep, that looks right. But wait a sec, what’s THIS?!
Notes payable and other borrowings:
(2010) 14,477
(2009) 13,769
Growing every year. Why oh why?
Here’s David Merkel:
What I am saying is that once the discipline against debt is breached, it becomes easy to justify more debt. I think we are seeing that now, and Buffett is compromising his principles.
Hey, Greenberg eschewed debt for two decades, and then piled it on for two decades. Is Buffett doing the same thing? Personally, I think he is, though I don’t think he has thought it through. Warren, if you are reading me, pull back on the debt. It killed Hank.
Not Unreasonable 