Be fearful when others are greedy. Be greedy when others are fearful.
That sage advice from Warren E. Buffett is a staple of the Oracle of Omaha's investment philosophy. It also sums up the surprising swoop he made yesterday to purchase Constellation Energy Group Inc. as Baltimore's largest hometown company reeled from increasing concerns about its financial stability.
As investors ran scared from Constellation, causing its stock price to plummet by 60 percent since Monday, the man Forbes calls the country's second-richest man saw an opportunity - just as he did when he invested in undervalued companies like Coca-Cola, American Express, Gillette and the Washington Post Co. many years ago.
"It's typical of everything he has done," said Andrew Kilpatrick, author of Of Permanent Value: The Story of Warren Buffett. "He's not buying every day or every week, but he is constantly waiting for the right time to buy. Buffett has been so disciplined all his life and has all this cash, so he can afford to wait. [Constellation's] stock crumbled, as you know. So today, Buffett and his company are striking and they're striking big. It had to be a quick decision.
"There are very few buyers in this world who can cut a check for $4.7 billion right on the spot," Kilpatrick said. "The ability to do it with that much speed, you can be sure it was well-researched. He's always looking for a great company with great management at a great price."
The marriage gives Buffett and his flagship holding company, Berkshire Hathaway Inc., a sizable addition to his growing energy holdings, which he began by acquiring Constellation's new parent, Des Moines, Iowa-based MidAmerican Energy Holdings Co., in 1999. In return, Constellation and Maryland find newfound strength in a triple-A rated conglomerate that has rescued countless other companies from the brink of failure.
In Constellation, Buffett and MidAmerican found what they think is a steal. The last time Constellation put itself up for sale, in 2005, FPL Group Inc. agreed to pay more than $12 billion, before the deal collapsed amid opposition from Maryland legislators.
Buffett has also found a company that falls sharply in line with the type of companies he tends to pluck like tree-ripened fruit: simple to understand, old-line businesses with a long history, near monopolies and high brand recognition. He buys managers and employees as well as brands.
