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Many investors pay close attention to whatever Warren Buffett says. The billionaire's conglomerate, Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B), has outperformed the market by a wide margin since he took it over in 1965, and he shares advice freely with his shareholders and followers.
Lately, it's more his actions that people have been focused on. Berkshire Hathaway has been a net seller of stocks for the past nine quarters, and its cash stockpile has grown to more than $344 billion -- its highest level ever. For a company that regularly buys stocks and occasionally entire companies, that's a lot of cash to have on hand, and everyone from financial industry insiders to armchair analysts has been speculating about why Buffett and his team are holding onto so much.
One thing that Buffett's followers know is that he doesn't like to overpay for his stocks. With the market down so far this year, are stocks cheap enough for him -- and you -- to buy right now? Here's what he just said.
Are we knee-deep in opportunities?
Buffett has on many occasions described what he looks for in an investment. In this year's annual shareholder's letter, he did so again, saying: "We own a small percentage of a dozen or so very large and highly profitable businesses with household names such as Apple, American Express, Coca-Cola, and Moody's. Many of these companies earn very high returns on the net tangible equity required for their operations."
He went on to explain that when he finds a "really outstanding business," he loves to buy the whole thing. Berkshire Hathaway now owns 189 subsidiary companies, many of which you'll recognize, like battery maker Duracell and paint company Benjamin Moore. It's also one of the largest furniture companies in the U.S., owning several retail chains in that niche.
Many really outstanding companies aren't willing to be wholly acquired, of course. But Berkshire Hathaway can always choose to buy a stake in a public company for its equity portfolio. Stocks are available to buy at any time, and, as Buffett emphasizes, "very occasionally, they sell at bargain prices."
Buffett is known for his value approach to investing, which means that he looks for stocks that aren't trading at their true value, but that eventually will. However, although he clearly prefers to get a bargain, he has famously said: "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."
His actions as an investor back that up. Although Berkshire Hathaway has sold more stock than it has bought during the past two years, it continues to deploy capital where it sees opportunities. "Often, nothing looks compelling; very infrequently we find ourselves knee-deep in opportunities."