The Occasional Use of Arbitrage
Although Buffett dislikes partaking in arbitrage positions, there are times when the company is so flush with money that he must put it to use in a way that will provide his goal of providing superior returns to the shareholders.
In one report he talks about the examples where he invested in arbitrage positions: coca beans, tracts of forest, and RJR Nabisco stock.
He said concerning this type of investing that “Berkshire’s (BRK-A) arbitrage activities differ from those of many arbitrageurs…we participate in only a few, and usually very large, transactions each year.”
The reason I bring this up is that there are times when there are temporary, short-term adaptations to current conditions in a market that any company and management must make.
But look at how Buffett describes how he does it. First, he stays true to "participating in only a few." That means that those areas he's involved in are able to be understood as well as they can be by keeping them narrowed to a few. Next, he keeps the transaction very large, which provides another layer of security and safety to the investment.
So even when he needs to use some of the money outside of his normal way of doing business, he keeps it within the parameters of the guidelines he uses for long-term strategies.
Even so, when he talks about these things, it reminds him why it is that he doesn't like to go outside the long-term framework of investing that is so profitable to him and Berkshire shareholders.
Other Buffett Sources:
10 Secrets Hidden in Warren Buffett's Wallet
The Warren Buffett You Don't Know
Warren Buffet-Strategic Planning
Some practical advice from investment guru Warren Buffett
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