Greedy When Others Are Fearful

"The times, like now, were so uncertain and scary that most managers sat on their hands, but for all the outsider CEOs it was among the most active periods of their careers—every single one was engaged in either a significant share repurchase program or a series of large acquisitions (or in the case of Tom Murphy, both). As a group, they were, in the words of Warren Buffett, very “greedy” while their peers were deeply “fearful.”a a. Author interview with Warren Buffett, July 24, 2006."

"In both insurance and investing, Buffett believes the key to longterm success is “temperament,” a willingness to be “fearful when others are greedy and greedy when they are fearful.”"

"As the Nobel Prize–winning chemist Louis Pasteur once observed, “Chance favors . . . the prepared mind,” and speaking of prepared minds, let’s conclude by looking at how the two remaining active outsider CEOs, Warren Buffett and John Malone, navigated the financial meltdown that followed the September 2008 collapse of Lehman Brothers. As you would expect, both pursued dramatically different courses from their peers’. At a time when virtually all of corporate America was sitting on the sidelines, shepherding cash, and nursing ailing balance sheets, these two lions in winter were actively on the prowl."

"Buffett, after a long period of relative inactivity stretching back to the immediate aftermath of 9/11, has had one of the most active periods of his long career. Since the fourth quarter of 2008, he has deployed over $80 billion (over $15 billion of it in the first twenty-five days after the Lehman collapse) in a wide variety of investing activities: • Purchased $8 billion of convertible preferred stock from Goldman Sachs and General Electric • Made a number of common stock purchases (including Constellation Energy): $9 billion • Provided mezzanine financing to Mars/Wrigley ($6.5 billion) and Dow Chemical ($3 billion) • Bought various distressed debt securities in the open market: $8.9 billion • In Berkshire’s largest deal ever by dollar value, bought the 77.5 percent of Burlington Northern that he didn’t already own for $26.5 billion • Acquired Lubrizol, a leading, publicly traded lubricant company for $8.7 billion • Announced a sizable ($10.9 billion) new investment in IBM stock Over the same period, John Malone has been quietly conducting an extended experiment in aggressive capital allocation across the disparate entities that were spun out of TCI’s original programming arm, Liberty Media. In the depths of the financial crisis, Malone: • Implemented a “leveraged equity growth” strategy at satellite programming giant DIRECTV—increasing debt and aggressively repurchasing stock (over 40 percent of shares outstanding in the last twenty-four months). • Initiated a series of moves across the former Liberty entities, including the spin-off of cable programmer Starz/Encore and a debt-for-equity swap between Liberty Capital (owner of Malone’s polyglot collection of public and private assets) and Liberty Interactive (home of the QVC shopping network and other online entities)."