Warren Buffett’s Berkshire Hathaway investment vehicle is on the lookout for “an elephant-sized acquisition”. The hunt for promising companies “is what causes my heart and [business partner Charlie Munger’s] to beat faster… even at our ages of 88 and 95” (Buffett is the 88-year-old).
Unfortunately the “immediate prospects for that are not good”, said Buffett in his latest letter to shareholders. “Prices are sky-high for businesses possessing decent long-term prospects”. That “disappointing reality means that 2019 will likely see us again expanding our holding of marketable equities”.
Reinforcing his reluctance to buy at a high price, Buffett in effect admitted to CNBC that Berkshire had overpaid for food giant Kraft Heinz, whose shares slid last week after reporting disappointing fourth-quarter results.
Kraft Heinz is still a wonderful business, says Buffett, but it would need to deliver a much higher return than it currently is to justify the price he paid for the shares. As it stands, Berkshire Hathaway had to absorb a $3bn loss last year from an “impairment of intangible assets” that arose almost entirely from its interest in Kraft Heinz.
Buffett does acknowledge that even firms bought for too high a price can show their worth eventually, if the business does well. “Investment performance converges with business performance. And… the record of American business has been extraordinary,” he noted, though as always, he avoids predicting how stocks will perform in the short run.