Buy Like Buffett

According to numerous media reports, Warren Buffett will soon be purchasing more shares of foreign steelmaker POSCO (PKX). Buffett already owns over 4% of the South Korean steel manufacturer. This is a curious move considering that Buffett has historically invested in quality companies selling at distressed prices. POSCO is a quality company but the current price doesn’t seem to be as cheap as the traditional Buffett investment.

Buffett thinks that the Kraft-Cadbury deal is a bad deal for shareholders of Kraft. He states that he would have voted against the proposed acquisition due to the issuance of share, high reorganization costs and the sale of its frozen pizza division. Only time will tell if Buffett is correct in his assertion that Kraft (KFT) is overpaying for the Cadbury franchise.

Finance Buffett, Kraft, Posco

Warren Buffett fell from the world’s richest man to the 2nd richest man. Bill Gates reassumed his title as the richest man in the world. Buffett lost 25 billion dollars last year and his net worth has declined to 37 billion dollars. Buffett had a number of investment bets go against him. Investments in Wells Fargo, American Express, US Bancorp and Burlington Northern have declined significantly.

Buffett’s company Berkshire Hathaway also lost it AAA credit rating. Fitch downgraded the insurance conglomerate today, The downgrade is not based on any additional specific default risk found in Berkshire Hathaway but based on industry downgrades. Fitch believes that no financial services company warrants a AAA rating in this economic environment.

Finance Buffett

Warren Buffett appears to have failed in his attempt to buy Constellation Energy Group (CEG) for 4.7 billion dollars. MidAmerican Energy, Buffett’s company, agreed to purchase CEG for $26.50 a share in September. Constellation Energy terminated this agreement yesterday and accepted an offer from Electricite De Franc(EDF) for 4.9 billion dollars. EDF will purchase 50% of Constellation Energy’s nuclear power holdings and allow CEG to remain an independent company.

I took particular interest in this transaction because I owned stock in Constellation Energy and they are my hometown utility company. You would think that Buffett would be upset about being outbid for Constellation Energy. Think again. Buffett will walk away from his attempted acquisition of Constellation Energy with a 300% return on his investment.

Buffett will receive 418 million dollars in cash, 175 million in termination fees, 460 million in CEG stock and he gets his 1 billion dollar investment back. He will also earn an additional 140 million in interest over the next year while awaiting repayment of his investment. Buffett stands to make over 1 billion dollars on his original investment in less than four months. That is a return of 300 percent on an annual basis.

The brilliance of Warren Buffett is his ability to win in just about every investment that he makes. He buys distressed companies that are selling well below their true value. Buffett has a unique ability to see opportunity where others see calamity. This explains Buffett’s investment of 5 billion dollars in preferred stock and 5 billion dollar in warrants exercisable at $115 in Goldman Sachs. And Buffett’s 3 billion dollar preferred stock investment in General Electric with 3 billion in warrants exercisable at $22.25. Buffett invested in GE and Goldman at a time when they were in desperate need of capital.

Buffett was derided in October for his declaration that he was investing in US companies when others were pulling out. He has been putting money to work while others have fled for the safety of U.S. Treasuries. Time will tell if Buffett’s thesis is correct. Warren Buffett’s recent investment purchases may look risky right now but as history shows you shouldn’t bet against him.

Finance Buffett, Constellation Energy, EDF, GE, Goldman Sachs, merger, Mid American

I was reading Forbes magazines list of the richest people in the world to learn how each individual amassed great sums of wealth. I discovered that most of the billionaires listed fit into one of five categories. I call these categories the 5 I’s. Below is a list of the most common categories that have lead to wealth.

1) Innovators - These are the people that develop a new way of doing things. You don’t have to come up with the next great idea, just improve upon an existing one. Steve Jobs of Apple is one of the great innovators. From the ipod to the iphone to the imac, Apple is always on the cutting edge of innovation.

2) Inventors - These are the creators of a new good or service. You just have to see a need for a product that others do not see. James Dyson became a billionaire by developing the bagless vacuum cleaner. His idea was initially rejected because it was seen as hurting vacuum bag sales. Today the dyson vacuum is an international best seller.

3) Inheritors - This is the easiest path to wealth. You need rich relatives for this one though! Ask Jim Walton, S Robson Walton, Alice Walton and Christy Walton who are the 4th, 5th, 6th and 7th richest Americans. They are the heirs of the Walmart fortune.

4) Investors - Investors commit money to an endeavor with the expectation of profit. This can be through saving or purchasing an asset for capital gains. Warren Buffett has built his fortune through stock investing. Donald Trump made his billions by investing in real estate. Jerry Jones got rich in oil and gas exploration.

5) Entrepreneurs - Entrepreneurs are the risk takers that start and manage a business. Entrepreneurship can take many forms from purchasing a franchise to creating a start up. Bill Gates of Microsoft and Larry Ellison of Oracle grew small technology firms into the world’s largest software companies. Oprah Winfrey began her career in local news and is now the CEO of a media empire.

I know. I know. Entrepreneurship doesn’t start with the letter I. But the 5 I’s sound a lot better than 4 I’s and an E.

Finance, Personal Finance Buffett, building wealth, entrepreneur, Forbes, investor, Jerry Jones, richest, Trump