Why is Warren Buffett Buying?

Update from the Lookouts:  Memories of Our Children’s Youth

Memories of Past Buying Opportunities

During the summer of 2008, the markets were showing signs of cracking, but the financial collapse was not upon us yet.  Concerns were building in various areas of the markets with the housing bubble and significant leverage in the system.  The Federal Reserve had started raising rates in 2004 and ended their rate hike cycle in late 2006 when they became more concerned about a recession than possible inflationary pressures.  The market peaked in 2007 and the recession was upon by 2008.  But the “smart money” did not start buying until late 2008 and early 2009.

Following the “Smart Money” Through Insider Filings

What is Warren Buffett Buying Now?

Billionaire investor Warren Buffett has used the ongoing market selloff as an opportunity to buy the dip and add several new major positions recently.  He related much of his thinking about his purchases earlier this month during the Berkshire Hathaway shareholders meeting. It’s interesting to note that Buffett told shareholders in his annual letter on Feb. 26 that he was having trouble finding anything to buy at attractive prices, but Berkshire spent more than $40 billion on stocks over the next three weeks.  He also repurchased $3.2 billion of Berkshire Hathaway shares and agreed to buy the Alleghany insurance conglomerate for $11.6 billion during the first quarter alone. This is the greatest volume of purchases Buffett has made in any one quarter since 2008.

Why is Buffett Buying Now?

Despite his roots as a value investor whose favorite holding period is forever, in recent years Warren Buffett has been known to value quality companies over an appealing purchase price. In Superinvestors of Graham and Doddville he writes how those with the correct temperament and training have proven to have outperformed market indices over time. Of course, we are probably asking too much for any investor to always outperform. Buffett’s acumen seemed to have disappeared over the last couple of years and in the late nineties when markets grew more speculative. His long-term track record speaks for itself and it is hard to find anyone who comes close to this when looking back over multiple market cycles, however.

Buffett invests in what he understands, owning companies with strong competitive advantages and strong management teams. In his early years, he sought to find companies selling at great prices, often lower than break up value. His second in command Charlie Munger has been instrumental in helping him focus on higher quality companies they want to own and waiting for prices to fall within their price range. Buffett seems to feel many companies, especially those who will benefit from ongoing inflation, are now within this attractive price range.

Buffett invests in what he understands, owning companies with strong competitive advantages and strong management teams. In his early years, he sought to find companies selling at great prices, often lower than break up value. His second in command Charlie Munger has been instrumental in helping him focus on higher quality companies they want to own and waiting for prices to fall within their price range. Buffett seems to feel many companies, especially those who will benefit from ongoing inflation, are now within this attractive price range.

Warren Buffett’s Patience

Patience remains an underappreciated investing attribute. But it is one of the reasons Buffett has been so successful.  Buffett refuses to invest if he cannot find what he feels are good values.  When speculative excesses of the late 1960s drove prices to a level where he felt he could no longer perform for his partners, Buffett shut down operations in 1969.  The markets entered into a long, drawn-out bear market than bottomed in 1974. Asked by Forbes how he felt about the stock market after prices had come down, Buffett Responded, “Like an oversexed guy in a harem.  Now is the time to start investing.”

Buffett may not feel as excited now as he did in 1974 as valuations are not near as attractive, but he seems to be making the rounds again.  Some might say he is the most excited he has been since late 2008 based upon his recent activity.  If Warren is getting excited, maybe we should be also.