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Tom Armistead
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I'm a well-informed retail investor and post on SA in order to expose my thought process to critical examination and comment from readers. It makes me a better investor. I'm particularly proud of bullish macro articles posted in 2009 and later, in which I presented ideas that encouraged me to... More
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Tom Armistead's Instablog
  • Buffet's $22 Billion Deal 1 comment
    May 7, 2012 3:28 PM | about stocks: BRK.A

    Following up on the Berkshire Hathaway (NYSE:BRK.A) shareholder meeting, various analysts and pundits have been trying their hand at figuring out what company Buffett didn't buy for $22 billion. Certainly it would make a nice rumor: it can be reheated at any time for the next year, good for a quick pop for the perpetrator. But the question here is, why is this phantom acquisition that got away so credible?

    It's pretty simple. The Oracle is known for being greedy when others are fearful, taking a long term view, and buying quality. The thing is, there are a lot of quality companies trading very low, because there's a lot of fear out there, and not too much long term thinking.

    Everybody knows this is the type of market that creates openings for the oracular octogenarian, but somehow it seems preferable sit on the sidelines and let him run with the ball.

    I'm not going to name any names. There are plenty of single digit P/E's out there, plenty of cash heavy balance sheets, plenty of under-appreciated American icons, etc.

    The most likely outcome is, those who huddle on the sidelines, listening to Nouriel Roubini, John Hussman, David Rosenberg et al, will be dumbfounded a few short years from now when the nimble nonagenarian will be skipping away with his winnings.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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  • Jimbot3500
    , contributor
    Comments (62) | Send Message
     
    Mr. Armistead,

     

    I just discovered your recent article on how CDS should be regulated as they are essentially insurance - just outstanding!!! I am now hooked on your perspicacious commentary and look forward to every one of your writings!

     

    As for Buffett's $22 billion dollar question, I am probably WAY, WAY off base here, but I was thinking that maybe the big game trophy he was after was Precision Castparts (PCP), a firm that I have been studying that:
    1) Has moat (#1 or #2 in virtually every major component field they are in)
    2) Is in a highly specialized area of manufacturing that is extremely difficult to simply throw cash at (in a startup, for example) to get a lead or even enter
    3) Displays excellent history in its financial data
    4) Has an exceptional history with its major customers - I believe 45 years with GE, 25 or 35 years with Rolls-Royce, etc.

     

    I know that PCP's current market cap is around $25 billion, but perhaps it was within range of the $22 billion mark when Mr. Buffett kicked off negotiations.

     

    Again, thank you for your excellent insight, and I look forward to reading your numerous articles - past, present and future!

     

    Take care
    22 May 2012, 11:28 PM Reply Like
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