Warren Buffett once famously stated that his "favorite holding period is forever." If you look at his Berkshire Hathaway (BRK.A -0.37%) (BRK.B -0.16%) portfolio through the years, though, he doesn't always hold onto stocks for very long.
However, there is one investment that Buffett says Berkshire will always own. And it's one the conglomerate has a huge position in right now.
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Investing in a rich uncle
Buffett wrote in his most recent letter to Berkshire Hathaway shareholders that the company will "always hold a boatload of cash and U.S. Treasury bills." Berkshire certainly had a boatload of U.S. Treasuries at the end of 2022: It reported a whopping $94.7 billion invested in the government bonds.
Let's put that amount in context. Berkshire's single biggest investment right now is Apple. The company owns nearly $152 billion of the tech stock (including shares owned by its New England Asset Management subsidiary). But Berkshire has more money invested in U.S. Treasury bills than it has invested in the next three largest positions in its portfolio combined.
Why is Buffett so adamant about putting a lot of Berkshire's money in the hands of Uncle Sam? His letter to Berkshire shareholders provides a big clue. Buffett's reference to always holding cash and Treasuries was made in the context of managing risk.
Buffett wrote that Berkshire will "avoid behavior that could result in any uncomfortable cash needs at inconvenient times, including financial panics and unprecedented insurance losses." U.S. Treasury bills (T-bills) offer a safe way to make sure that the company never faces liquidity problems.
A current attraction
Others have become big fans of Treasuries lately, as well. For example, personal finance author and TV personality Suze Orman recommends that individuals put their emergency funds in short-term U.S. Treasury bills.
There's a reason why U.S. Treasuries have grown in popularity. Treasury yields are now above 4% for all maturities of one year or less. Currently, the U.S. four-month Treasury bill offers a yield of 4.92%. Longer-term Treasuries, however, have lower yields than short-term T-bills do. The 10-year Treasury's yield stands at 3.34%, while the 20-year bond is yielding 3.71%.
This phenomenon of higher yields for short-term T-bills and lower yields for long-term T-bills is called an inverted yield curve. It frequently serves as a warning sign that the U.S. economy could be headed for a downturn.
Buffett, however, isn't putting a lot of Berkshire's money in Treasuries just because of the higher yields available right now. Berkshire has maintained large positions in U.S. Treasury bills for years.
Buffett's other forever investment
It's important to note that Buffett also mentioned another "forever" investment in his recent letter to Berkshire Hathaway shareholders. In addition to proclaiming that Berkshire will always own a lot of cash and U.S. Treasury bills, he added that the company will also always have investments in "a wide array of businesses."
Buffett knows that Treasuries are just a place to park cash allocated as a safety cushion and for when there aren't other attractive investing opportunities. Don't think for a second, though, that he wouldn't prefer to use some of the $94.7 billion that Berkshire currently has in T-bills to invest in stocks.
In fact, Buffett wrote several years ago to Berkshire shareholders that the company had $116 billion in cash and U.S. Treasury bills at the end of 2017. He added, "This extraordinary liquidity earns only a pittance and is far beyond the level Charlie [Munger] and I wish Berkshire to have."
Berkshire will always hold Treasuries. But Buffett will also always have the desire to invest in stocks.
