That's because investors are more inclined to pay up for quality companies. In turn this offers potential for the share prices of good-quality companies to recover to (and above) their long-term average earnings multiple.
The "challenge" of too much cash
Rossouw points to Buffett's investment in Burlington Northern Santa Fe Railroad operator, as an example of the investor trying to shed some of this cash. 'Yes, this investment has a strong 'moat' but it is highly capital intensive – keeping a railway maintained requires you to spend a lot of money consistently over time. It helps Buffett deal with a key problem which is the largess of excess cash generated by his insurance businesses each year.'
- It could be, as some believe, a problem of too much money, and not enough investment opportunities.
- It could be a precautionary measure to make sure his company is well positioned to cope in an increasingly uncertain environment.
- It could be that Buffett is positioning himself to make another big deal.
Read more: http://www.thisismoney.co.uk/money/diyinvesting/article-2957271/Four-things-not-know-Warren-Buffett-probably-should.html#ixzz3XeBaAw4y