One of the frequent criticisms about Warren Buffett is that the man dubbed the world’s best investor can be a little too patient for the market’s liking.
That has particularly been the case over the past few years in which the legendary investor kept building up a massive cash pile, which was approaching $200 billion.
At the same time, he was busily looking at buying many businesses but he just refused to pay the prices that were being demanded.
That led to some sharp criticism of Buffett’s Berkshire Hathaway, with some claiming Buffett had “lost his bottle’’ and that the massive pool of cash was like a low-yielding millstone around the company’s neck.
Buffett finally pulls the trigger
Buffett has put those concerns to rest recently, pulling the trigger on the $15.5 billion purchase of insurance company Alleghany and also ploughing a total of $9.6 billion into Occidental Petroleum.
Both moves are straight out of the Buffett playbook, with the veteran investor swooping after the US market swooned in the face of the Russian invasion of Ukraine, bringing purchase prices into his “value” zone.
Those who poked fun at Buffett must now eat humble pie as Berkshire Hathaway shares shake off the generalised market woes, adding a handy 15% so far this year.
Suddenly that cash pile is in play and deals will be done if they can meet Buffett’s strict value hurdles.
The new purchases are in areas that Buffett knows very well, with insurance being one of the four core businesses that Berkshire Hathaway invests in.
Investments in familiar areas
Joseph Brandon, Alleghany’s current chief executive, used to run Berkshire’s Gen Re unit, so he is very much a known and valued quantity.
Alleghany’s investments in various industrial businesses will also slot nicely into the Berkshire portfolio.
Buffett has often touted insurance as an ideal business for Berkshire Hathaway, given the need for strong capital backing and the ability to reap consistent profits.
As he pointed out in his latest shareholder letter: “The (insurance) product will never be obsolete, and sales volume will generally increase along with both economic growth and inflation.”
“Also, integrity and capital will forever be important. Our company can and will behave well.”