MONEY

"In recent years, Warren Buffett has become increasingly concerned about the growing threat to traditional media businesses from video, cable and satellite."
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There are times, it seems, when it is impossible to escape from the name of Warren Buffett, the American investor whom many professionals regard as the greatest stock market investor there has ever been. So successful has Buffett been that he now commands media attention for even the smallest move that he makes. Just as well, perhaps, that he only does a handful of deals a year, otherwise the crescendo of publicity would be deafening.

In the last month, Buffett has cropped up in the headlines twice - first as the man who brokered the huge $19bn merger between Disney and ABC/Capital Cities, the television metwork; and secondly, by bidding a mere $2.3bn for the minority shareholding in an American insurance company, Geico.

The latter is an interesting company which, rather like Direct Line in this country, specialises in selling car and household policies direct to the public. It is more famous, however, for being the first company that Buffett invested in. At the age of 20, he put half his savings - some $7,000 - into buying the company's shares, and promptly made a turn by selling a few of them to his aunt.

Today he is worth more than $8bn, which makes him number one or number two in the annual rankings of America's wealthiest individuals, depending on how well shares in Microsoft are doing at the time. (The computer boffin, Bill Gates, now contests the top spot).

Both recent transactions give fresh insights into the way that Buffett, the archetypal long-term investor, operates. His success has been based on buying large shareholdings in companies with good business franchises and holding them for a long period of time - which in some cases can mean 20 years or more.

The Disney/ABC deal, however, marks a rare occasion when he is cashing in one of his investments. Buffett was an early shareholder in Capital Cities, which runs several local TV and radio stations. He sold out - but later returned to help finance the takeover of ABC, one of America's three main TV networks, in 1994.

In recent years, Buffett has become increasingly concerned about the growing threat to traditional media businesses from video, cable and satellite. Although the margins in TV remain better than the average business, he laments that "gone are the days of bullet-proof franchises and cornucopian economics" - what Lord Thomson in this country called a licence to print money. Unusually, Buffett sold a third of his holding in ABC/Capital Cities in 1993 - and now has effectively disposed of the rest in a deal that he actively helped to bring about.

The Geico transaction seems more straightforward. As with Capital Cities, Buffett has a habit of returning to stocks in which he has invested before. He recently started buying shares in American Express again - some 30 years after pulling off one of his earliest coups in the same company.

The bulk of his shareholding in Geico was bought in 1976 when the company was close to bankruptcy. He has since steadily increased his shareholding and now is buying out the 50 per cent of the shares that he does not already own. As he he said when he announced the deal, if a business is attractive once, it may well pay to repeat the process.

Buffett's huge personal wealth today is a monument to the effectiveness of the simple principles that underlie his investment approach. Huge numbers of words have been written about what those principles are. The most recent book about his methods spent several weeks on the New York Times bestseller list.

But simplicity remains the key to what he does. He sticks to investing in businesses that he knows a good deal about - one reason why it is no surprise to see him returning to the same industries and the same companies.

Although he is friendly with Gates, for example, Buffett has never invested in Microsoft or any other high technology company - on the grounds that he does not fully understand the risks involved.

Just as important, Buffett insists that he never invests purely for the sake of it. The only thing he wants to put his money into are shares in individual companies. The overall level of the market and the state of the economy are irrelevant. What matters most is whether the market price of the shares he likes are a bargain or not compared with the intrinsic value of the business.

Such opportunities may not come up for several years at a stretch, which is why Buffett characterises his investment approach as "masterful inactivity verging on sloth". When he does place a bet on a company, however, he bets big - and holds on to the shares for a long time, until the value of the business is at last reflected in the share price.

The most startling thing about Buffett's success is that he reckons that about three quarters of his huge wealth is due to barely a dozen investment decisions that he has taken over a period of more than 40 years in the game. The rest of the time, he has just sat back and watched the managers of his businesses - helped by the wondrous powers of compound interest - do the work for him. In investment, if results matter more to you than the fun of taking part in the first place, it really can pay to be patient.

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