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									Buffett the Bargain-Hunter Returns
Sunday September 15, 9:40 am ET

By Bill Rigby

NEW YORK (Reuters) - Buffett is back.

Of course, the billionaire Oracle of Omaha, Nebraska, never went away. But Warren Buffett, the
world's second richest man -- and probably the most successful investor this century -- is showing a
new generation a thing or two about value.

Not long ago Buffett, 72, was the old man who didn't get technology, keeping his hand in his pocket
when stocks were soaring.

When the tech bubble burst, Buffett was one of the few without egg on his face, and he is picking up
the pieces as energy and telecoms markets crumble.

His sudden resurgence has not surprised long-time Buffett-watchers.

"It's classic Buffett," fund manager Henry Asher told Reuters. "Identify something you want to own,
identify a price where the math works for you, and if it doesn't come down to that price, don't sacrifice -
- just wait." Asher's New York-based North Star Group Inc. holds about $7 million in shares of Buffett's
conglomerate Berkshire Hathaway Inc. (NYSE:BRKa - News).

Buffett puts it even more simply: "Work out how much it

will pay out from now until Judgement Day, then discount it back and buy it cheaper," he told
shareholders at his annual meeting in May, when asked for the secret of his success. The annual
meeting is the only time Buffett answers specific questions on his investing style. He declined requests
for an interview.

This year's carnage is made for Buffett. He's a natural fire-sale shopper and a godsend for firms who
need cash quickly. He has more than $7 billion in cash on hand, and can set-up iron-clad deals in a
day. The Midwest baseball nut can still throw a fastball, in business at least.


His MidAmerican Energy Holdings pounced on Dynegy Inc.'s (NYSE:DYN - News) Northern Natural
Gas Pipeline for $928 million last month. Cash-strapped Dynegy needed the money in a hurry, and
Buffett took it for $600 million less than Dynegy paid for it only six months before.

It was a rerun of a deal with Williams Cos. Inc. (NYSE:WMB - News), another struggling energy firm,
earlier in the year. He snapped up the Kern River gas pipeline at a bargain price, and in separate deals
bought $275 million in preferred shares and lent the firm $900 million, along with Lehman Brothers
(NYSE:LEH - News), at 30 percent interest. Whether Williams prospers or not, Buffett is set to profit.

The chief skeptic of Internet investments has also dipped his toe into technology.

He bought $100 million in convertible bonds in fiber-optic cable firm Level 3 Communications Inc.
(NasdaqNM:LVLT - News) in July, prompted by his old friend and Berkshire board member Walter
Scott, chairman of that firm. The deal has already shown a paper profit, with Level 3 shares trading
around $4.50, above the $3.41 where he can convert his bonds into shares.
"It's very old-style Buffett," Matt Sauer, a portfolio manager at Oak Value Capital Management, told
Reuters. "He's always been indifferent about the kind of assets he buys -- as long as they are cheap.
And we know how a pipeline is going to look in ten years." Sauer's firm holds about $390 million in
Berkshire shares.

The widely held view that Buffett did not like technology has been overblown, say some of his
followers. While he has told investors that he doesn't understand it and has usually avoided the sector,
that doesn't mean he would never make any investments in the sector, they way.

"When he said 'I don't understand technology', what he meant was: 'No-one else does either,"' said
Sauer. Buffett's view, according to Sauer is: "If you want to sit and tell me what Intel's earnings are
going to look like for the next ten years then feel free. Because Andy Grove (Intel's chairman) can't do
it. Nor can Bill Gates with Microsoft."


That difficulty of picking winners is keeping Buffett from moving aggressively in the stock market,
where he made his name and most of his $35 billion fortune -- second only to Microsoft's
(NasdaqNM:MSFT - News) Gates' net worth.

"I have more money than ideas," Buffett told shareholders, explaining the difficulty in deploying the
cash that his 40 or so operating subsidiaries throw off.

Annual returns on stocks will be around 7 percent in the near future, Buffett says, way down from the
go-go 1990s. In this low-return market, where stocks are still relatively expensive, buying whole
companies is a better option, he says. In the past three years alone he has spent $15 billion picking up
a dozen or so small and medium-sized firms.

That's the reverse of the great bear market 30 years ago, when Buffett laid the foundations of his

"Stocks were very cheap in the early 1970s -- people would part with stock for 20 to 30 cents on the
dollar compared to the value of the whole business," said Sauer. "Now people are willing to part with
assets at distressed values because their stock is almost gone. Buffett would rather buy the asset and
keep the cash flow than participate in the stock."

Buffett's "buy and hold" philosophy has been more about holding than buying in the past year. And he
has suffered, like all stock investors. With no major sell-offs, his mammoth stock portfolio has fallen
about 17 percent in the past 18 months, from $37.6 billion at the end of 2000 to $31.2 billion at the end
of June. With no technology or telecoms shares on his roster, that works out a little better than the
Standard & Poor's 500 index (CBOE:^SPX - News), which has dropped 25 percent in that time.
Berkshire's own class A shares have risen about 4.5 percent in that time.

If anything, stocks are still overvalued, Buffett suggested in an essay in Fortune magazine late last
year. It's a good time to buy stocks when the total value of all publicly traded securities is 80 percent or
less of the gross national product, Buffett wrote. That level is currently around 130 percent. In 1999
and part of 2000, it approached 200 percent.


The paper stock losses haven't really hurt Buffett. The overall holdings of Berkshire are sound, with
$39 billion in bonds and $7 billion in cash, both up from 18 months ago.

And taking the long-view, Buffett is well in profit on his core shareholdings -- American Express Co.
(NYSE:AXP - News), Coca-Cola Co. (NYSE:KO - News), Gillette Co. (NYSE:G - News), Washington
Post Co. (NYSE:WPO - News) and Wells Fargo & Co. (NYSE:WFC - News) -- which he bought from
the early 1970s to the early 1990s.

His stake in Washington Post, for example, which really set Buffett on his way as a stock investor, cost
him only $11 million in the early 1970s. It's now worth nearly $1 billion. His Coca-Cola stake, bought
for $1.3 billion in the late 1980s, is now worth more than $9 billion.

Buffett's biggest stock move in the past three years was jettisoning nearly $3 billion of stock in Freddie
Mac (NYSE:FRE - News), the government-backed mortgage giant, in 2000. The only notable buys in
the past 18 months were large minority stakes in rating firm Moody's Corp. (NYSE:MCO - News) and
tax preparer H&R Block (NYSE:HRB - News), both of which risen modestly in value since he bought

Buffett's problem is that he needs to make huge stock buys to have make any kind of impact on his
portfolio, and even though prices have tumbled, he reckons today's market is just not the great
opportunity he saw in 1973-74, when the stock market tanked way below underlying values of shares.

"You don't see those periods very often," Buffett told reporters after his annual meeting in May.
Perhaps only once every 50 years or so, according to his longtime business partner Charlie Munger.


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