Warren Buffet Reveals His Treasury Bill Strategy

Summary

In this episode of 'Father and Son Investing,' the focus is on Warren Buffett's weekly habit of purchasing treasury bills, a strategy that emphasizes the importance of maintaining cash reserves. The video explains what treasury bills are, their advantages such as being risk-free and highly liquid, and the tax benefits they offer. It also touches on the concept of building a treasury bill ladder for a steady cash flow and the current yields available. The discussion encourages viewers to consider this approach for sound financial management.

Takeaways

• 📈 Warren Buffett has a habit of buying treasury bills every Monday, which he considers a foundational part of his investment strategy.
• 💼 Treasury bills are short-term debt securities issued by the U.S. government, with maturities of 52 weeks or less.
• 🔐 They are considered risk-free investments, backed by the full faith and credit of the U.S. government, making them a safe haven for investors.
• 💰 The value of treasury bills is predictable, with a known maturity date and return, unlike stocks which can fluctuate in value.
• 💵 Treasury bills offer tax advantages, being exempt from state and local taxes, which can enhance the effective return on investment.
• 🚀 High purchase limits are available, allowing investors to buy up to $10 million per bill type per auction, catering to large-scale investments.
• 💸 They provide liquidity, similar to holding cash, with a wide market for quick sales, although this may sometimes result in a loss.
• 💬 Buffett emphasizes the importance of maintaining cash reserves, likening it to oxygen for businesses and individuals.
• 🔄 The concept of dollar-cost averaging can be applied to treasury bills, smoothing out the average purchase price over time.
• 📊 Building a treasury bill ladder is a strategy that involves investing in bills with different maturity dates to create a regular income stream.

Q & A

What habit does Warren Buffett have every Monday?

Warren Buffett has the habit of buying treasury bills every Monday.

What did Buffett say about habits during his 2007 address at the University of Florida?

Buffett said that most behavior is habitual and that the chains of habit are too light to be felt until they are too heavy to be broken.

What is a treasury bill?

A treasury bill is essentially debt that the United States government sells to individuals, banks, and other countries. It is a U.S. government debt with a maturity of 52 weeks or less.

What are the different maturities available for treasury bills?

Treasury bills are available in maturities of 4 weeks, 8 weeks, 13 weeks, 26 weeks, and 52 weeks.

What is the minimum and maximum amount one can invest in a treasury bill?

The minimum amount to invest in a treasury bill is $100, and the maximum is $10 million per type of treasury bill per auction.

Why are treasury bills considered risk-free?

Treasury bills are considered risk-free because they are backed by the full faith and credit of the United States government.

What tax advantages do treasury bills offer?

Treasury bills are not taxable by state and local governments, which can effectively increase the rate of return compared to other investments like high-yield savings accounts or certificates of deposit.

What is the importance of having cash on hand according to Warren Buffett?

Buffett emphasizes the importance of having cash on hand, likening it to oxygen; it's not thought about when present but is crucial when absent.

What is a bond ladder strategy and how does it relate to treasury bills?

A bond ladder strategy involves investing in treasury bills with different maturity dates. As each bill matures, the money is reinvested in a bill of a different maturity, creating a cycle of maturing and reinvesting.

How does buying treasury bills weekly relate to dollar-cost averaging?

Buying treasury bills weekly is a form of dollar-cost averaging, as it helps to level out the average price paid over time, reducing the impact of market fluctuations.

What are the current yields for different maturities of treasury bills?

As of the script's recording, the four-week treasury bill yield is relatively low at around 3.3 percent, while other maturities show higher yields, with the 13-week and 17-week bills being particularly attractive.