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Warren Buffett’s Next ‘Elephant-Sized Acquisition’

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Mar. 4 2019, Published 8:07 a.m. ET

Next elephant

In his 2018 annual letter, Berkshire Hathaway (BRK-B) chair Warren Buffett said that he and vice chair Charlie Munger “hope for an elephant-sized acquisition.” Buffett’s love for large companies that Berkshire Hathaway can fully own isn’t new. In 2015, Berkshire Hathaway bought Precision Castparts, which produces fabricated products for several industries including aircraft manufacturers (GE) (BA).

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Cash pile

Berkshire Hathaway holds more than $100 billion in cash according to its most recent filings. The company’s buying activity was quite subdued in the fourth quarter and it even sold some Apple (AAPL) stock. Berkshire exited Oracle (ORCL) and added Red Hat (RHT) (IBM) to its portfolio in the fourth quarter.

Meanwhile, last week there were rumors that Berkshire Hathaway might acquire Southwest Airlines (LUV). Berkshire Hathaway already has a stake in the company as well as other airlines (ITA) including American Airlines (AAL), Delta Airlines (DAL), and United Continental (UAL).

Airline companies

To be sure, while Berkshire Hathaway started buying airline companies in 2016, Buffett had a negative view on the sector as recently as 2013 when he called the sector a “death trap.” In 2016, while Buffett sounded optimistic about airline companies, he admitted that the sector has “been a disaster for capital.”

Meanwhile, over the years, Buffett’s investment philosophy has evolved, and he has also looked open to technology stocks (MSFT) (QCOM). Last year, Buffett also admitted to missing out on Amazon (AMZN) and Alphabet (GOOG).

Having said that, Berkshire Hathaway’s performance versus the S&P 500 (SPY) has narrowed in the last two decades. Read What Has Been Impacting Warren Buffett’s Performance for more information.

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