Would You Like to Have Buffett's Problem?

Warren Buffett has a problem the rest of us would love to have: He has a ton of cash at his disposal, and his investments just keep throwing off ever larger amounts of that green stuff. It's a problem only in the sense that it's very tough to invest that much cash effectively, but it's a problem for him nonetheless.

Berkshire Hathaway, the insurance company he manages, throws off significant amounts of cash. On top of that, the companies it wholly owns (like Burlington Northern Santa Fe, See's Candies, and Benjamin Moore) are themselves substantial cash generators, as well. Taken as a package, it becomes pretty easy to see how billions of dollars of cash pile up on Berkshire's balance sheet annually.

Show yourself the money
As an individual investor without the means to buy entire companies, you can't exactly replicate Buffett's cash generation strategies, but you can still buy the same sorts of companies he does. And while you can't access their entire cash flows unless you amass a controlling interest in the companies you buy, you can get your hands on the dividends they pay.

Even with those differences in available strategies, you can still own many of the same businesses that Buffett's Berkshire does, for many of the same reasons. Just take a look at these world-class companies, the cash they generate, their solid payouts, and the very real investments that Buffett's company has made in them:

Company

Shares Held by Berkshire Hathaway

TTM Operating Cash Flow
(in millions)

Dividend Yield

Kraft (NYSE: KFT  ) 105,214,584 $3,040 3.8%
General Electric (NYSE: GE  ) 7,777,900 $37,140 3.0%
Coca-Cola (NYSE: KO  ) 200,000,000 $9,140 2.7%
United Parcel Service (NYSE: UPS  ) 1,429,200 $4,980 2.7%
ExxonMobil (NYSE: XOM  ) 421,800 $43,860 2.5%
Lowe's (NYSE: LOW  ) 6,500,000 $3,520 2.0%
Nike (NYSE: NKE  ) 3,642,929 $2,670 1.4%

Source: Yahoo! Finance and Berkshire Hathaway's recent 13-F filing.

All those companies are well-known businesses with international reaches and large corporate footprints. They certainly don't fit the standard profile of "tiny, agile, and rapid growing" that you might expect to need to look for in order to get market-trouncing returns. Yet they all also share the very important distinction of being partially owned by the man often considered the world's greatest investor for his ability to trounce Wall Street over the long run.

Get Buffett's problem
Following Buffett's strategy of investing in companies that throw off significant cash, then reinvesting the cash you get from them is a great way to wind up with the same problem he has. Even better, there's historical precedent that simply following Buffett's picks is often a good way to wind up comfortable.

In fact, a 2008 study showed that investors who bought based on Buffett's picks at the beginning of the month after they were disclosed to the public were still able to beat the market. That's a pretty powerful statement on just how well investors can do by looking for companies that produce prodigious amounts of cash per dollar invested.

Regardless of whether you plan to ride Buffett's coattails directly or to find cash generators on your own, it's still a great idea to invest in companies willing to show you the money. If you'd like to wind up with Buffett's problem of having too much of that green stuff sloshing around your own personal balance sheet, it just might be the best chance you'll get.

Now, more than ever in today's economy, cash flow is king. What cash-producing companies have piqued your interest recently? Let us know which ones and why in the comments box below. Through Jan. 7, 2011, each comment will result in The Motley Fool making a $0.10 donation to its Foolanthropy partner, Thurgood Marshall Academy.

At the time of publication, Fool contributor Chuck Saletta owned shares of General Electric and Lowe's. Berkshire Hathaway, Coca-Cola, and Lowe's are Motley Fool Inside Value recommendations. Berkshire Hathaway and Nike are Motley Fool Stock Advisor picks. Coca-Cola and United Parcel Service are Motley Fool Income Investor selections. The Fool owns shares of Berkshire Hathaway, Coca-Cola, ExxonMobil, Lowe's, and United Parcel Service. Try any of our Foolish newsletter services free for 30 days.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.


Read/Post Comments (3) | Recommend This Article (9)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 30, 2010, at 6:53 PM, midnightmoney wrote:

    weak

  • Report this Comment On November 30, 2010, at 10:20 PM, TMFBigFrog wrote:

    Hi midnightmoney,

    Thanks for your feedback. It is much appreciated, both for the $0.10 it provides to Thurgood Marshall Adademy ($0.20 if you include this feedback note, and perhaps $0.30 if you respond again!) and for the clear reminder that we write for others' consumption.

    Hindsight is always clearer than foresight, and in hindsight, I certainly see areas I could have improved before submitting this article for publication. That said, since we do write for our readers, I'd be interested in hearing your suggestions on how I could have presented this piece better.

    Regards,

    -Chuck

    Inside Value Home Fool

  • Report this Comment On November 30, 2010, at 11:22 PM, mkj1928 wrote:

    I think it's a great article. Buffett would never consider buying 99% of the garbage most investors buy. That's a lesson in it's own right.

    When you look at his picks how many companies are even close to being questionable....NONE!

    His stocks are in fact great companies. Consistency is key. Buffett is like a turtle, slow, steady, and focused.

    Great job on the article

    Mike

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