Billionaire investor Warren Buffett and BlackRock CEO Larry Fink recently provided a strong rationale for going all-in on stocks.

Buffett wrote in his 2012 annual letter that he believed equities would, over time, provide significantly higher returns than bonds and gold. Fink, whose company is the world’s largest asset manager, with $3.5 trillion under management, said in an interview with Bloomberg TV that stocks should outperform bonds because cash accounts yield zero and the 10-Year Treasury yields only 2 percent.

Their advocacy of only owning equities runs counter to conventional wisdom. Most fiduciaries would recommend significant allocations to money markets and fixed income. The “prudent man rule” stresses that every investor should have a pool of liquid cash, possibly as much as six months’ living expenses, before buying stocks. While equities have compelling long-term value, they pose significant downside risk now, given macroeconomic uncertainties.

According to the Federal Reserve, corporate cash is now above $2 trillion, a record high. Strong cash balances motivate companies to deploy a significant amount of cash to increase dividends and repurchase shares.

Josh Peters, in the book “The Ultimate Dividend Playbook,” said dividends show the company’s board has not only direct interest in the shareholders but also the ability to pay out cash.

Howard Silverblatt, senior index analyst at S&P Indices, wrote in his Dividend Report, “Dividends had a great year in 2011, with actual cash payments increasing over 16 percent and the forward indicated dividend rate up 18 percent.”

Standard & Poor’s compiles a list of companies, called the Dividend Aristocrats, that have consistently increased dividends every year for at least 25 years.

According to Birinyi Associates, approximately $540 billion in stock was repurchased in 2011. This would be the third-highest amount in U.S. history, after 2006 ($655 billion) and 2007 ($863 billion).

Buybacks reward investors by increasing the value of remaining shares and lifting per-share earnings results. Buybacks are an indication that the company believes its shares deserve a higher price and that repurchasing shares is the best possible return on investment for their cash holdings.

Exxon Mobil is the poster child for share repurchases. It spent about $20 billion to buy back shares in 2011. It reduced its share count by 18.5 percent over the past five years ($129 billion). Other companies making major buybacks: Hewlett-Packard Co. ($4.6 billion), IBM ($4.0 billion), and JP Morgan Chase & Co. ($3.5 billion).

IBM demonstrates the power of buybacks over time. Assuming IBM continues repurchasing its stock at current levels, it will reduce its outstanding shares by 50 percent over the next 10 years.

In September 2011, Buffett’s Berkshire Hathaway announced it would begin its first buyback and said it “is expected to continue indefinitely.” Berkshire won’t buy company shares if they are higher than 10 percent above the then-current book value of the Class A and Class B shares.

In an excerpt in Fortune magazine from Buffett’s upcoming 2012 shareholder letter, the Oracle of Omaha explained why he believes in certain investment categories, whether businesses, farms or real estate, over time.

Ideally, these assets should have the ability in inflationary times to deliver output that will retain its purchasing-power value while requiring a minimum of new capital investment. Farms, real estate and many businesses such as Coca-Cola, IBM and Berkshire’s own See’s Candy meet that double-barreled test.

Fink offered this rationale for owning stocks: “I do not have a view that the world is going to fall apart. So you need to take on more risk.” He boldly suggested to Susan Li of Bloomberg: “Be 100 percent in equities. Chairman Bernanke is telling you ‘I’m going to keep bond yields so low you cannot make a return to meet your needs owning bonds.'”

Originally published in the Sarasota Herald-Tribune