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:
Shares Held by Berkshire Hathaway
TTM Operating Cash Flow
|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.