Monday, July 6, 2020

Smart Money Moves - Warren Buffett

Berkshire Energy announced a $9.7 billion deal to acquire the natural gas pipeline and storage facility business of Dominion.  It is being interpreted  as a vote of confidence for the economy by Warren Buffett.  Nothing could be further from the truth.

First of all, the deal involves $4 billion in cash and the assumption of $5.7 billion in debt.  That’s a tiny investment for Berkshire Hathaway which had accumulated $137 billion in cash at the end of 1Q20 (the deal “consumes” just 2.9% of the cash hoard).

Secondly, the gas pipeline business is a highly regulated utility that produces stable annual returns, a very good alternative to, say, government bonds.

So, if anything, this is a vote of NON confidence by Mr. Buffett.  It’s not as if he’s buying anything related to a V recovery, consumer spending, etc. represented by the “bargains” in the travel and leisure or retail sectors.

The sage is being as conservative as possible.


  1. Wow. Interesting! Depressing.

  2. ...but why would he assume the debt? They wouldn't sell to him otherwise?

    1. Yes, that’s the usual practice. It’s a going, profitable business, obviously more than able to cover its debt service.