Warren E. Buffett, 2008

In January 2008, in the midst of the subprime-mortgage crisis, Warren Buffett is looking for good investment opportunities for his almost $50 billion in cash. As usual, he has been patient and careful in identifying the right opportunities; however, the amount of cash in his company has grown considerably, and with so much cash sitting idle, returns could suffer. This case can be used to pursue several objectives: (1) to showcase Warren Buffett's leadership in the financial markets; (2) to understand his principles and the principles of value investing more broadly; (3) to understand Warren Buffett as both a thinker and a leader in the world of investing and as an agent of stability in a world of capital markets characterized by continuous change; (4) to discuss Buffett's investment decisions (Swiss Re, Burlington Northern, the funding of his own new bond-insurance business, BHAC) and the timing of those decisions in the midst of the subprime crisis and in an environment of increasing energy demand; (5) to discuss his decision not to invest in banks in the current environment as well as his largest investment, the philanthropic Gates Foundation; and (6) to understand some of the new market forces, such as sovereign funds, as providers of capital. Excerpt UVA-F-1550 WARREN E. BUFFETT, 2008 Warren Buffett, the legendary Omaha-based investor, acted quickly on January 23, 2008, when his company, Berkshire Hathaway Inc., bought a 3% stake in the Swiss reinsurance giant Swiss Re. In addition, Berkshire Hathaway purchased a 20% stake in Swiss Re's property and casualty exposure over the next five years. On the one hand, some analysts saw this action by the “Oracle of Omaha” as a signal to move quickly in a sector (financials) and a company (Swiss Re) that, though beaten down, might present a substantial opportunity (Exhibit 1). On the other hand, some analysts were surprised that Buffett invested in Swiss Re, given his earlier investment in General Re, one of Swiss Re's competitors. They were also surprised by the investment in Swiss Re's property and casualty business in light of the soft pricing cycle that the sector was currently in. For Swiss Re, this move clearly meant support for its capital, as the company intended to continue its stock-buyback program—in fact, after the deal was announced, Swiss Re declared a (Swiss francs) CHF1.75 billion (US$ 1.6 billion) stock buyback, on top of a CHF6 billion buyback the year before (with CHF2.7 billion of that amount already repurchased). Referring to Berkshire's investment, Jacques Aigrain, Swiss Re's chief executive officer, noted, “They have full freedom to buy or sell as they wish. We are extremely proud to have them as shareholders.” Although Swiss Re's stock soared 10% following the announcement, it had subsided by the end of the trading day, closing up only 3.7%. . . .