Pricing and timing are intertwined when one company seeks to acquire another one. Omaha-based legendary investor and Berkshire Hathaway (BRK)’s CEO Warren Buffett has taught his shareholders and the grand public another relevant lesson of value investing by not closing any substantial acquisition in 2017.
“If Wall Street analysts or board members urge that brand of CEO to consider possible acquisitions, it’s a bit like telling your ripening teenager to be sure to have a normal sex life,” Buffett wrote in his annual letter to shareholders. Indeed and from his standpoint, CEOs have taken on too much debt to finance expensive deals.
Beyond larger and fiercer competition from other BKR-like conglomerates, Buffett stressed on the fact that having a large amount of cash available – BKR is currently sitting on USD 116 billion of cash and bonds – doesn’t mean you have to spend it. Too much debt is an issue but buying at a price too high is an even more serious issue since you may never be able to make your investment profitable.
“We will stick with our simple guideline: The less the prudence with which others conduct their affairs, the greater the prudence with which we must conduct our own,” Buffett wrote. Summing up, when you’re playing on Wall Street, Buffett may just be watching you.