In August 2016, Warren Buffett announced that Berkshire Hathaway had made its largest acquisition to date at a worth of $37.2 billion. The purchase of Precision Castparts, Inc. was exactly the sort of deal that Warren Buffett is known for, and investors and fans of Warren Buffett can easily learn a few things by studying that deal.
Here are five things that investors wanting to follow in the footsteps of the Oracle of Omaha should take into account when considering new accounts and businesses to invest or purchase.
This goes back to Buffett’s mentality that he’d rather buy a fantastic company for a fair price than to buy a mediocre company for a fantastic price. Don’t buy a sinking ship and assume that you can fix it somehow. If it’s not already making money, then it’s not a stable investment.
2. Good management
Buffett in general has a very hands-off approach to the companies that he owns, so it’s important that the company is making it on its own and that it is the kind of company that any decent manager could run.. Now, it’s important to remember that you’re investing in the company, not the management so it’s not a good idea to invest solely because you like the CEO.
Some industries are simply more stable than others. Sure, biotechnology is a hot field right now, but there’s not a reliable way to tell whether it will still be making money in 10 years or not. Things like insurance and energy, however, will always be around in some form or other. They are far more stable.
It’s important to consider the deadline for the deal and while you don’t want to be pressured, you also don’t want to miss out on a fantastic deal. For this particular deal, Buffett ended up borrowing money to complete the deal—something he normally doesn’t do, but he evidently didn’t want to risk missing out.