Buffett Says Trigger Finger Itchy for Berkshire Takeovers
Feb. 26 (Bloomberg) -- Warren Buffett said his "trigger finger is itchy" for takeovers after cash holdings at his Berkshire Hathaway Inc. climbed to $38.2 billion.
"Our elephant gun has been reloaded," Buffett said today in his annual letter to shareholders. Berkshire needs "good performance from our current businesses and more major acquisitions," after the company reported a 43 percent gain in fourth-quarter profit on derivative bets and earnings from its Burlington Northern Santa Fe railroad, he said.
Buffett is seeking takeovers after Berkshire's $13 billion 2010 profit increased the firm's resources and near record-low interest rates limited the returns available in fixed-income markets. Buffett completed his biggest takeover, the $26.5 billion Burlington purchase, last February. Since then he's said he'll consider deals outside the U.S.
"He reloads at a rapid rate," said Thomas Russo, a partner at Gardner Russo & Gardner, who has about 10 percent of his $4 billion under management invested in Omaha, Nebraska- based Berkshire. "The hunt for new investments, and wholly owned ones, I don't think slows down whatsoever."
Berkshire's fourth-quarter net income rose to $4.38 billion from $3.06 billion. The profit for full-year 2010 was up 61 percent from 2009. Berkshire has advanced 5.9 percent on the New York Stock Exchange this year, beating the 4.9 percent advance in the Standard & Poor's 500 Index.
Investing Approach
Buffett, 80, outlines his investing approach in his letters and opines about economics, executive compensation and government policies. His annual communications with shareholders have won him a following of professional money managers and the moniker "the Oracle of Omaha."
"Commentators today often talk of 'great uncertainty,' Buffett wrote. "Don't let that reality spook you. Throughout my lifetime, politicians and pundits have constantly moaned about terrifying problems facing America. Yet our citizens now live an astonishing six times better than when I was born."
Buffett, who refers to Berkshire's stockholders as "owners," shuns quarterly conference calls with analysts and institutional investors, preferring to communicate by sending the letter and taking questions at the company's annual meeting.
Acquisitions may help Buffett increase earnings for Berkshire as investment income at the company's insurance subsidiaries slide. Investment income produced by units including reinsurer General Re and car coverage specialist Geico fell 5.9 percent in 2010 to $5.19 billion. Buffett said that may decline further in 2011 as investments he made during the credit crisis mature.
Perils of Leverage
Buffett warned in the letter about the perils of leverage and how his grandfather Ernest, a grocer, created a rainy day fund of $1,000 for his son Fred and similar funds for his other children. Buffett likened the savings to the minimum $20 billion in cash Berkshire customarily keeps on hand.
"By being so cautious in respect to leverage, we penalize our returns by a minor amount," Buffett wrote. "Having loads of liquidity, though, lets us sleep well. Moreover, during the episodes of financial chaos that occasionally erupt in our economy, we will be equipped both financially and emotionally to play offense while others scramble for survival."
Marmon Stake
Buffett said Berkshire will pay about $1.5 billion to increase its stake this year in Marmon, a unit of about 130 businesses, to 80 percent.
Goldman Sachs Group Inc. and General Electric Co. will probably return the $8 billion that Buffett invested in 2008 for securities paying 10 percent, Buffett said. Yields in fixed- income markets have fallen in the last two years, and Buffett, Berkshire's chairman and chief executive officer, said in October that investors buying bonds after the decline were "making a mistake."
The yield on two-year U.S. Treasuries fell to a record low of 31 basis points on Nov. 4 before rising to 71 basis points yesterday. The two-year note's average yield over the last 10 years was more than 250 basis points.
To contact the reporter on this story: Andrew Frye in New York at afrye@bloomberg.net .
To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net .
Find out more about Bloomberg for iPad: http://m.bloomberg.com/ipad/Sent from my iPad
