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It took him long enough.

At the end of 2004, Warren Buffett's Berkshire Hathaway (NYSE: BRK-A  ) (NYSE: BRK-B  ) had around $44 billion in cash. Ditto for 2005. And 2006. And, yes, 2007 as well.

At one point, more than 20% of Berkshire's assets were earning money-market returns. While armchair investors complained that the company had amassed too much capital to continue its market-thrashing ways, Buffett simply sat on Berkshire's enormous pile of cash. And waited. And waited. And waited some more.

He refused to buy until the time was right.

The time is right
Buffett has called the current mess an "economic Pearl Harbor." He has also said, "In my adult lifetime, I don't think I've ever seen people as fearful economically as they are now."

These aren't just words. Mr. Greedy-When-Others-Are-Fearful has been stuffing money where his mouth is.

That $44 billion Berkshire had at the beginning of this year? By the end of June, Buffett had spent it down to $31 billion in deals including Berkshire's purchase of Marmon Holdings, the Mars purchase of Wrigley, and the Dow Chemical (NYSE: DOW  ) takeover of Rohm & Haas (NYSE: ROH  ) . He even bought up auction-rate securities at bargain prices.

And lately, he's been accelerating. It's nice to have cash when the credit markets are frozen.

In just the past month, he has committed:

  • $4.7 billion to purchase Constellation Energy (NYSE: CEG  ) for $26.50 per share. (It had been trading above $100 at the beginning of the year.)
  • $5 billion to purchase perpetual preferred stock in Goldman Sachs (NYSE: GS  ) . He not only gets the hefty 10% dividend but also receives warrants allowing him to buy $5 billion of common stock at $115 per share.
  • $3 billion to General Electric (NYSE: GE  ) under terms similar to the Goldman Sachs deal -- except the preferred stock is callable for a 10% premium after three years. The warrants allow him to buy stock at $22.25 per share.

That's more than $20 billion spent this month if he chooses to exercise those warrants. Buffett's back, baby!

Buffett's buying. Should you?
Historically, average investors could simply ride Buffett's coattails to huge returns (think double the market's returns). But this time is different.

Buffett got sweetheart deals on both Goldman and GE. In the case of GE, he's earning 10% dividends on a company rated AAA -- and if he buys the warrants and they pan out, he'll earn even more.

When Buffett made these deals, he was providing much more than just capital. He was lending his credibility -- and that meant Goldman and GE were willing to give him great deals in the hopes that his name alone would stabilize their stock prices for follow-on offerings.

In other words, don't buy into Goldman or General Electric just because Buffett has.

Learning from Buffett
Instead of buying what Buffett is buying, we should look to what his strategy has to teach us. So what can we learn from Buffett's shopping spree? Two things:

  • Invest for a lifetime.
  • Compile a watch list of attractive companies.

Buffett's pushing 80, but he hasn't been panicking and trying to make a quick buck, no matter what the market has done. Rather, he's been investing for the long term, and in the past few years, that's meant waiting for opportunities to present themselves. Now that they are, he's striking with a vengeance.

And because of his patience, he hasn't had to compromise -- and he's getting great companies at great prices. When Constellation Energy's price dropped so precipitously in mid-September (from above $60 to the $20s), he was ready to pounce. Goldman and GE may have approached him, but you can be darn sure that he'd already done the bulk of his research beforehand.

Follow Buffett's lead
To be great investors, we need to be similarly prepared. In volatile times like these, Mr. Market presents us with loads of great values -- but just because a stock price has fallen, that doesn't mean a given company is a good value.

A prudent way to take emotion out of the equation is by compiling a list of companies you'd love to own for the long term and the prices you'd love to pay. When one of your favorite companies goes on sale, you can revisit your list, ensure your investing thesis is still intact, and bend it like Buffett.

If you're looking for some help compiling your list, you can see what Fool co-founders David and Tom Gardner are recommending to subscribers at Motley Fool Stock Advisor. Like Buffett, they look for premier companies that they can hold for the long term -- and you can view their recommendations free for 30 days. There's no obligation to subscribe.

Anand Chokkavelu doesn't own shares in any of the companies mentioned. Dow Chemical is a current Motley Fool Income Investor recommendation, and Constellation Energy Group is a former pick of that service. Berkshire Hathaway is an Inside Value and Stock Advisor pick. The Fool owns shares of Berkshire Hathaway and has a disclosure policy.

Read/Post Comments (10) | Recommend This Article (29)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 14, 2008, at 2:39 PM, seahead wrote:

    Good article, I thought the author would conclude by suggesting you purchasing Berkshire Hathaway stock. Seems the best way to invest like Warren Buffett is to buy his stock.

  • Report this Comment On October 14, 2008, at 4:46 PM, unremitting wrote:

    In these times, the fundamentals and valuations don't matter. You must mix fundamental AND technical analysis with the macro economic picture. Otherwise, you will be buying stocks including Berkshire "in simple panic." Then, a good way to trade/invest is to set your limit orders VERY low and wait for the volatile swings to catch your order. You'll outperform Warren in the long run!

  • Report this Comment On October 16, 2008, at 12:54 AM, sarcastro999 wrote:

    Buy it like Buffett- then you too can lose 20% (and counting) of your portfolio's value from its peak price! Warren can do no wrong? We'll see. As far as I can tell, there are two more bubbles that still need to be bursted- U.S. treasuries and Warren Buffett...

  • Report this Comment On October 17, 2008, at 12:06 PM, jochman wrote:

    Since I have been a Motley Fool every recommendation i have followed has gone down appreciably. I think you are throwing darts like the rest of the pundits and your offers for more stuff from you at a price are just more hash.My opinion of Motley Fools is that you "suck".

  • Report this Comment On October 17, 2008, at 1:45 PM, sandiwa wrote:

    i used to have stock advisor. i think it's a great tool. no longer subcribed since i am now sitting and adding on to 12 stocks. while my portfolio has suffered some losses, i'm happy to say i'm still outperforming the market by 26%age points. i used to think i could deal with extreme swings of the market. now i'm almost certain i can deal with it. only time and the next bears will tell.

  • Report this Comment On October 17, 2008, at 8:24 PM, WhidbeyIsland wrote:

    How does one "short" U.S. Treasuries and Warren Buffett?

  • Report this Comment On October 25, 2008, at 3:02 PM, chero1 wrote:

    sarcastro999 Warren b. lives by the financial ( golden rule. ) He who has the gold, makes the rules. Also, I learned a long time ago, (while playing poker ) , the player with the biggest stash , will usually control the game. nuff said.

  • Report this Comment On October 29, 2008, at 7:43 AM, naturallyrose wrote:

    I plan to jump out of anything that Buffett buys, wait for it to tank and then maybe get back in. He gets special deals we can't get. I owned ge since 2002 and was up 80% plus my dividends. Now I am down 26%. I don't see how it is fair that he gets more than the rest of us; special dividend of 10% while mine is being cut. This is no different than insider buying. Companys should have to offer the same deals to everyone. I have learned my lesson. Give me his deals and I'd be a great investor too!!!

  • Report this Comment On October 29, 2008, at 7:52 AM, naturallyrose wrote:

    one more thing, I owned USG also and was extremely happy with it until buffett made a meal of it too. (I don't know what special deal he got with that one) My new way of investing is buy good companies and hold unless Buffett Buys!!!

  • Report this Comment On January 25, 2009, at 1:48 AM, ilovesum wrote:

    nautrallyrose , i agree with you 100%, i own ge and usg

    i would have gladly bought a ton of each of them at that deal

    at the very least the ge gs usg shareholders should have a proportional opportunity of their shares at the same deal

    i wrote emails to the usg, ge, the sec and berkshire about my complaint about this , would you guess none have replied ?

    its a small wonder there is no confidence in the market , from lying , incompetent , overpaid ceó's to very suspect backdoor deals ,

    whats even scarier is the govt that started the housing bubble is spending massive amounts in bailouts to fix a problem they created how did they put it "we thought the banks could regulate themselves" or ARMS were a good idea Mr. Greenspan , you are a idiot to put it mildly

    so the govt that created all this problem by changing or removing regulations is now going to spend us into oblivion to fix it , i'm sure all those other mistakes they made were just a coincidence and now they will get it right ( haw haw)

    apparently the govt now feels the competent and prudent ones should bail out the dummies that did it wrong , see banks , gm , house ownders etc

    i wasn't stupid and didn't get greedy and take all those risks so why should i pay for those that did ?

    what happened to capitalism ? this is socialism

    so my question is why should us little suckers gamble our hard earned money , i mean invest ?

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