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In early 1973 Buffett hired Salomon Brothers to raise $20m in senior notes (a bond) for BH, even though he did not need it for the operating business (the interest rate was 8%). This was to pay off an older debt of $9m, with the rest providing some extra firepower for the share portfolio when the time is right. (The money came from 20 institutional investors and was due for redemption in 1993).
He had also busied himself analyzing companies, despite not being able to take many buy decisions in the earlier years.
As shares fell, portions of excellent business could be bought at bargain prices. He was ready; he had done the preparation in the lean years and knew the quality of what he was now buying. He could pick up many shares at single-digit price earnings ratios.
By mid-1974 deep pessimism had spread through the share-buying community, with people scared by simultaneous recession and 12% inflation (“stagflation”). But Buffett was in a totally different mood; he was having a great time. He was excited because he could pick up what others were throwing away. As he has said repeatedly: “Be fearful when others are greedy and be greedy when others are fearful”.
In an interview conducted by Anthony Simpson who, based on what the man from the mid-west had told him, wrote the racy headline for his profile article: “Look At All Those Beautiful, Scantily Clad Girls Out There!,” (Forbes magazine, 1st November 1974) Buffett was asked “How do you contemplate the current stock market”.
“Like an oversexed guy in a harem,” he shot back. “This is the time to start investing.”
1974 reminded him of………To read the rest of this article, and more like it, subscribe to my premium newsletter Deep Value Shares – click here http://newsletters.advfn.com/deepvalueshares/subscribe-1
