For many investors and entrepreneurs, this is a time when cash should be guarded closely and nothing more than expensive than a cask of wine should be invested in.
But the rich, who have seen market turmoil before, aren’t afraid to splash out. With the price of many assets tumbling, wealthy billionaires are wading into markets around the world looking for buying opportunities.
Warren Buffett has always said investors should be greedy when others are fearful and he made that very clear this week by investing $US5 billion in Bank of America – an idea he apparently came up with while in the bath.
The deal is classic Buffett bargain hunting – Bank of America, which had seen its shares fall by almost half in 2011 before Buffett’s phone call, gave the legendary investor a steep discount.
He gets $US5 billion worth of preferred shares (said to be worth $4.46 billion) plus 700 million warrants, which have a strike price of $US7.12 (the stock closed at $7.65 at the close on Thursday). Reports suggest Buffett’s paper profit is already as much as $US3 billion.
Here are a few other examples of where the rich are putting their cash.
The market turmoil of recent months hasn’t stopped the Pratt family’s investment arm, led by Alex Waislitz, from investing. On August 22 Thorney said it had spend about $1 million to increase its stake in ATM group Customers Limited from 10.68% to 11.75%. Tiga has also been active, increasing its stake in IT company Legend Corporation and buying a 9.06% stake in commercial and industrial air conditioning and refrigeration company Hastie Group. It’s an interesting spread of businesses, which suggests the Pratt family isn’t completely down on the Australian economy.
British born, Bahamas based billionaire Joe Lewis is hardly a household name in Australia but he is taking a keen interest in struggling cattle group Australian Agricultural Co, better known as AAco. Lewis has built a 10.7% stake in the company and while it’s not known what his intentions are, he is not known as a passive investor. According to Forbes, his interests stretch from restaurants to resorts, but the best known assets in his $US3.2 billion empire are a $US500 million stake in pub operator Mitchells & Butler and British soccer team Tottenham Hotspur.
It’s been a rough few weeks for hedge fund investor John Paulson, the man who famously made $US3.5 billion in 2007-08 betting against subprime stocks and another $US5 billion in 2010 as the US market and gold prices increased. But so far this year Paulson’s largest hedge fund, Paulson Advantage Plus, has dropped 39%, thanks mainly to big bets on Bank of America and Hewlett Packard. Paulson has trimmed his stakes in both companies, but he has been doing some buying too, increasing his stake in US financial services group Wells Fargo and buying stakes in biotech group Life Technologies Corp, cloud computing group Savvis and a beleaguered little media group called News Corporation.
The richest man in the world, Carlos Slim, doesn’t mind sniffing around stocks that investors don’t want anything to do with. The last week provided two examples: New York Times Company and luxury retailer Saks. Both companies have been heavily sold-off in recent weeks, but Slim can obviously see value that others can’t – on consecutive days he bought small share parcels taking his stake in NTYC to 7.5% and his stake in Saks to 16%. His reason for buying? “We just think the price of the stock is in a good point to buy,” his spokesman and son-in-law Arturo Elias Ayub told the Wall Street Journal.
The Bank of America’s deal isn’t the Oracle of Omaha’s only recent purchase – he said a few weeks ago that Berkshire Hathaway had its biggest buying day on August 8, when the US market had its biggest fall since the GFC. This continues a pattern for Buffett, who splashed plenty of cash in the June quarter too, increasing his stakes in Mastercard and Wells Fargo. But it was a new stake in budget retailer Dollar General that grabbed the most attention. The group, which sells food, cleaning products and pet supplies, has held up well in the last 12 months thanks to its discount focus.
FlexiGroup founder and rich list member Andrew Abercrombie is set to emerge as one of the top 20 shareholders in internet service provider iiNet – although he hasn’t actually bought shares in the company. Abercrombie is one of a group of rich list members who are investors in telecommunications firm Amcom, which has decided to return a stake it owned in iiNet to shareholders. Abercrombie will emerge with a stake in iiNet worth almost $6 million.
It might not be the surest bet in the history of investing, but it is pretty cool. Singapore’s eighth richest person Peter Lim (who is worth $US1.8 billion) last week bought a stake in luxury car maker and Formula 1 backer McLaren Group for an undisclosed amount, and joined the company’s board. Lim is no stranger to sports-related investments. Last year he made an unsuccessful bid for British soccer club Liverpool and owns the rights to run Manchester United-themed restaurants in Asia. Lim even has an Australian connection – he received an accounting degree from the University of Western Australia before returning to Singapore to become one of the biggest stockbrokers in that country.
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
