Heralded Investor Buffett Turns Eyes On Silver

Warren Buffett's first prized possession was a coin-changing machine, which seems apt now that the world's third-richest man has purchased an estimated 20 percent of global silver stocks.

Buffett, 67, is widely revered as the plain-spoken billionaire chairman of Omaha, Neb.-based Berkshire Hathaway Corp., the most successful stock partnership in history with 29 percent annual returns over the past dozen years.

Buffett proudly lives in the same modest brick home he bought in 1958 for $31,500 and once said he is "working his way up to cheap." For years, he drove his own beat-up car and wore cheap, rumpled suits.

 

"I buy expensive suits. They just look cheap on me," he explained. On Tuesday, the blue-eyed, red-cheeked "Oracle of Omaha" shook up the investment world by announcing that Berkshire had purchased 129.7 million ounces of silver, worth roughly $900 million, in the past six months.

"Last summer, Mr Buffett and Mr Charlie Munger, vice chairman of Berkshire, concluded that equilibrium between supply and demand (in silver) was only likely to be established by a somewhat higher price," the typically mutely worded statement said.

While silver prices have risen to nine-year highs as near-term supplies have been snapped up, Buffett's silver buy surprised for at least two reasons: Most of Berkshire's investments have been in company stocks, and buying a precious metal as a hedge at a time of persistently low inflation seems contrary to common sense.

At least a partial explanation may be found in Buffett's remarks in the past two years that he feels stocks are overvalued after a long bull market. Also, his investment strategy that epitomises the "buy and hold" philosophy could bear fruit in the silver purchase.

Perhaps reflecting the wide belief in Buffett's sagacity, Berkshire's class A stock -- which has turned thousands of long-time Buffett devotees into millionaires -- posted an all-time high Wednesday at the New York Stock Exchange of $52,800, up $200. Tuesday, the shares surged $700. The firm's smaller class B shares rose $30 to $1,760 Tuesday. On Wednesday afternoon, they were off $1.

Annual meetings for shareholders of Berkshire Hathaway, a struggling clothing manufacturer he bought in 1964 and converted into his acquisition vehicle, have become the "Woodstock of Capitalism" for Buffett, who holds court in Omaha for hours and invites all to eat with him at his favourite steakhouse. He has often been described as a "techno-phobe" for his unwillingness to invest in technology companies, and sets his sights on so-called "inevitables," defined as businesses that are well-managed and have well-placed products.