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Buffett on His Mistakes

Jeff Fischer
October 27, 2003

Warren Buffett is not one to give copious interviews, so when he does, it's a treat worth reviewing.

Although the chairman of Berkshire Hathaway (NYSE: BRK.A  ) writes extremely lucid and timely thoughts about investing every year in his company's annual report, the few interviews that arrive between those reports always offer new insights into a man who is refreshingly long term, delightfully honest, and successfully "unambitious" in his business dealings. Sometimes, he just sits back in his Nebraska office and waits.

That was his message in today's Barron's online interview. Buffett, his partner Charlie Munger, and the company they run are sitting on $24 billion in shareholder cash with few attractive places to invest it. As Buffett has written in his annual reports over the past several years, stock prices leave much to be desired, and finding good value is like finding a needle in a haystack.

During the last five years, Berkshire has completed relatively few acquisitions, and paid an average of seven times pre-tax earnings for each, about half the market's current 14 times multiple on pre-tax earnings (while the S&P 500 is at 20 times projected 2003 after-tax income). Today, even with the market far below its 2000 peak, Buffett said, "We're not finding anything. We have more cash than ideas. The question is whether that will prevail for an unduly long time."

This said, Berkshire has made two acquisitions in 2003, totalling $3.2 billion, buying a manufactured-home maker and lender, and a grocery wholesaler. Buffett continues to seek businesses that he can project results for well into the future, shunning the unpredictable nature of technology firms. Quoting from the Barron's article:

Buffett has never been comfortable with technology stocks, and he's somewhat puzzled by the current valuation gap between major tech and drug issues. Intel and Cisco command double the valuation of pharmaceutical leaders such as Pfize