In typical fashion, Warren Buffett made some big acquisitions last week, and he made them quickly. The ever-patient Buffett can wait years to do a deal, but when he finds something he likes, he needs only days, sometimes just minutes, to wrap things up. This past week was no exception.
's biggest non-insurance deal
On Christmas Day, Buffett announced that Berkshire Hathaway
Marmon's stable of some 125 various manufacturing and service businesses such as cable, plumbing, and industrial products epitomizes the type of boring, predictable businesses that Buffett loves to own. According to Buffett, this deal is a "very large bet on America over a long period of time."
Doing what he does best
Days after the Marmon deal, Buffett announced that Berkshire was entering the bond insurance business upon receipt of a license from the state of New York. Always disciplined, Buffett does not intend to insure the bonds of structured mortgages, activities that are now jeopardizing the AAA ratings of MBIA
Rather than stray into exotic insurance projects, Buffett plans to offer the bond insurance to cities and counties and states that issue bonds to finance infrastructure projects. According to Buffett, he "won't stray" from insuring municipal bond issues. This is a very similar approach to Berkshire's recent $2 billion purchase of TXU bonds. According to Buffett, the TXU investment was a bet on the utility industry. Similarly, Buffett's bond insurance venture, made possible by the compelling rates, is a bet on the municipal infrastructure market. Buffett has experience investing in the bonds underlying municipal projects, and they're usually safer instruments backed by the revenues of the issuing municipality.
The current plans call for bond insurance in New York, possibly followed by California and Texas. Ultimately, Berkshire plans to seek licenses in other states. Yet Buffett won't stray. He has no plans to insure bonds covering derivatives or any financially backed product. Buffett is also willing to bet big, as he often does, when the opportunity arises. If the opportunities for municipal bond insurance continue to remain attractive, Buffett has stated that this could be a very big capital investment -- one that "could move the needle" at Berkshire.
Steady wins the race
Buffett's activities in late 2006 and 2007 suggest that he's very optimistic on the U.S. over a very long period of time. For decades, Buffett has avoided capital-intensive business with very low returns on capital. He changed his tune when he bought a chunk of railroad operator Burlington Northern Santa Fe
Pipes, wires, and railroads are not the glamorous businesses of the day and won't yield the Google
Further related Foolishness:
- The Death of Berkshire Hathaway?
- E*Trade Bailout Signals Troubles Ahead
- Oops! The Worst Predictions for 2007
Fool contributor Sham Gad is the managing partner of the Gad Partners Fund, a value-centric investment partnership operating in similar fashion to the 1950s Buffett Partnerships. He has a stake in Berkshire Hathaway. The Motley Fool owns shares of Berkshire. The Fool has a disclosure policy.