What Is Warren Buffett Up to Right Now?

Mar.30.11 | About: Berkshire Hathaway (BRK.A)

The Oracle of Omaha has been in the news quite a bit recently. He has made some pretty bold calls on the stock and bond markets. As always, Warren Buffett has been putting his money where his mouth is. Let’s take a look at what Buffett has been doing.

Government Bonds Are a Loser Right Now

Billionaire investor Buffett is bearish on long-term bonds right now. Buffett feels that any investments in fixed-income long-term assets is a bad move. He cites concerns about currency devaluation. Buffett stated, “I would recommend against buying long-term fixed-dollar investments. If you ask me if the U.S. dollar is going to hold its purchasing power fully at the level of 2011, five years, 10 years or 20 years from now, I would tell you it will not.”

Ten-year bonds are currently yielding 3.49%. In my opinion, that’s a horrible payout for such a long-term tie up of an investor’s capital. Thirty-year bonds are yielding just 4.54% and five-year notes are paying out 2.23%. Three-month Treasury bills are yielding a miniscule 0.09% right now.

Social Networks Are Overvalued

Buffett also took time to chime in on the major social networks. Everyone has heard of and/or uses Facebook and Twitter. There are over half a billion Facebook users and close to 100 million Twitter users. Facebook has been valued at $65 billion. Despite their popularity, Buffett does not believe in these sky-high valuations.

Buffett told New York magazine: “Most of them will be overpriced. It’s extremely difficult to value social- networking-site companies. Some will be huge winners, which will make up for the rest.”

Buffett is dead right, in my opinion. I wouldn’t touch the social networks as investment opportunities. Sure, they may be worth dabbling in for a trade or two, but they have absolutely no economic moats. The people who will make the cash from these social network IPO deals are the networks' founders and the early investors who buy up the shares and then dump them.

Buffett Is on a Buying Spree

A lot of people made a big deal when Buffett started dumping shares of some stocks over the past few quarters. They figured that Buffett has turned sour on the market. The truth is anything but. Buffett picked up another company over the past week, buying Lubrizol (LZ) in a deal valued at $9.7 billion.

This is a classic Buffett play. Lubrizol participates in the incredibly “unflashy” additives market. The company has a wide economic moat and is a boring company that just churns out revenue, bringing in $5.4 billion last year and a profit of $1.7 billion. The stock trades right at earnings growth and has approximately $900 million in cash on the balance sheet. Lubrizol is not highly levered and is at a great historical growth rate. The P/E is under the industry average, and Buffett will get the stock for a fair price if the deal is accepted.