Buffett Looking for Acquisitions in 2011

The two main themes for Warren Buffett’s letter to shareholders for the year 2010 were that a/ America’s best days lay ahead and b/ Berkshire has over $30billion in cash again and is looking to make some acquisitions – which are key to sustaining their outperformance of the S&P500 (which they use as their benchmark).

It is predictable that Warren, who advises President Obama on economic strategy, is talking up the prospects for the US. Although I did raise an eyebrow when he mentioned that house prices in the US are cheap and that people should take advantage of the low interest rates. He referred to the purchase of his home, which he never left, as his third-best investments. The best two being his wedding rings! Warren bought his house for $31,500 and after 52 years it is now worth $660,000. He does admit that had he invested this money in stocks he would be richer but clearly as Buffett nears the end of his distinguished career he has stopped measuring everything in purely financial terms.

When mentioning his search for acquisition, Warren writes: “Our elephant gun has been reloaded and my trigger finger is itchy”.  He will be painfully aware that he needs to put the Berkshire cash stockpile to work to compound the company’s investment returns further. There was no reference to a dividend as some were speculating. It will be fascinating to see which companies he acquires in 2011.

Berkshire Hathaway book value per share has now reached $94,730 (for A-shares). Historically the stock trades at 1.6-1.8 times the book value so the share price of $127,550 is still ‘cheap’ – although perhaps the multiple will stay lower now that Berkshire’s growth is expected to slow – due to its sheer size – and the fact that Warren Buffett can’t run the investment company forever.

You can read Warren Buffett’s 2010 letter to shareholders here. It is always interesting and useful for any investor or business owner!