Buffett at His Best?

11/25/2009 12:30 pm EST


Michael Brush

Columnist, MSN Money

Michael Brush, contributor to MSN Money, says the Oracle of Omaha made some great moves in the middle of the financial crisis that are paying off big now.

If you listened to the pundits over the past two or three years, you might have thought investing legend Warren Buffett had lost his chops.

But the last laugh belongs to the man from Omaha. In fact, the past 18 months may have been his best ever.

And they've shown us a different side of the famed buy-and-hold, value investing genius—a side that was aggressive and even predatory in taking advantage of the market crisis.

During the dark days of the credit crunch, Buffett was one of the few investors around with cash, because his discipline had kept him away from disaster.

His most recent headline-grabbing deployment of some of his vast cash hoard played out when Buffett bought the rest of Burlington Northern Santa Fe (NYSE: BNI)—the 77.4% of the railroad he did not already own. This move served as an "all in" bet on the future of America, Buffett said.

His best move during the credit crisis? A huge loan to troubled Goldman Sachs Group (NYSE: GS), arranged in late summer 2008, when few investors would touch anything at all in the financial sector.

Buffett locked in a 10% annual return on $5 billion he lent the Wall Street bank. [He also got] an option to buy 43.5 million shares of Goldman at $115 per share any time he wants during the next four years. Buffett is already up $2.4 billion on that part of the deal, with Goldman stock recently selling for $170.

Buffett negotiated five major deals like that when the frozen credit markets turned him into the de facto lender of last resort when borrowers had few options.

Just counting the bigger deals, Buffett lent more than $18 billion during the credit crunch, on very favorable terms to Berkshire Hathaway.

While everyday investors can't copy his most successful recent moves, we can all learn from how he's handled the crisis—and make some money buying [what] he's been buying.

Johnson & Johnson (NYSE: JNJ) is diversified in medical devices, medicine, and pharmaceuticals, and Buffett has liked it for years. Because of its strong brand name, numerous patents, and productive research pipeline, J&J has the kind of "economic moat," or protection against competitors, that piques Buffett's interest. It also has two other favorite Buffett qualities: Solid financial strength and prodigious cash flow. (It closed above $63 Tuesday—Editor.)

Buffett did not sell shares of Verisk Analytics (Nasdaq: VRSK) when the company reached the market in an initial public offering earlier this month. Verisk Analytics is an insurance industry consultant that helps insurers meet complex state legal and regulatory requirements and write policies.

Before going public, Verisk was owned primarily by property and casualty insurers like Berkshire Hathaway. The Verisk IPO was launched mainly to give strapped insurance companies a chance to raise funds by liquidating positions. (The stock closed below $28 Tuesday—Editor.)

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