Lately, in various finance-related articles and blogs, I've noticed an increase in the useage of the term "dry powder," and thus I thought I'd take a moment to explain what the term means and where it comes from.
In simple terms, "dry powder" refers to every American's favorite stimulant: cash. But its more complex meaning is: cash reserves. That is, cash on hand specifically kept by an individual or institution in order to make a certain investment when the timing's right.
For example, today in two separate posts DealBook uses the term. In one, about Apple, DealBook writes, "With $65.8 billion in cash -- more than any other technology company -- Apple has the dry powder to go on a shopping spree."
In another, about Blackstone, which released favorable first-quarter results, DealBook writes, "And the firm has plenty of dry powder to take advantage of those opportunities. Between its buyout and real estate arms, Blackstone reported $25.5 billion in uninvested capital."
As for where the term "dry powder" comes from, I invite you to imagine a Civil War battlefield in northern Virginia on a foggy spring morning 150 years ago during which opposing armies are kneeling in dew and mud, unloading lead bullet after lead bullet, smoke rising from muskets as from the pipes of southern gentlemen.
Of course, what's necessary to propel these muskets is gunpowder; and thus, for whatever reason, if a troop's gunpowder supply has moistened -- that is, lost its dryness -- then it's of no use.
And so "dry powder," back in the days of Grant and Jackson, was just as (if not more) important to keep on hand as it is now in the days of Jobs and Schwarzman.
(DealBook: A Shopping List For Apple's Growing War Chest)
(DealBook: Blackstone's Earnings Leap Ahead 58%)