Warren Buffet’s actions in 2011 positioned Berkshire Hathaway to benefit from improved overall business conditions in 2012. In the first quarter of 2011, Buffett told shareholders that he was ready to put his firm’s more than $40 billion in cash to work. “Our elephant gun has been reloaded, and my trigger finger is itchy,” said Buffet back in February. Though 2011 was a tumultuous year for business, Buffett signaled that conditions were ripe for acquisitions, positioning his firm to profit from macro improvements in the coming year.
And acquire he did; Buffett spent more in Q3 than any other quarter in 15 years. Nine billion in cash went to acquiring chemical giant Lubrizol, and then Buffett took an $11 billion stake in IBM. He also gave a struggling Bank of America $5 billion in cash.
Buffett’s willingness to to drop so much cash indicates that he thinks equity prices are a bargain (the same strategy the famed investor has employed for decades) and that investing in 2011 will prove prudent thanks to an anticipated upswing in the economy and business conditions in 2012 and beyond. Low interest rates and low acquisition multiples made 2011 an excellent time to buy.
Buffett’s confidence seems a bit higher than Chief Executive‘s readership, who were optimistic, but still cautious heading into 2012. Though the CEO Confidence Index (our gauge of CEOs’ perceptions on overall business conditions) did take a hit during the middle of the year, fall 2011 brought a renewed optimism to the table. The Index levels are still moderate, and a bit tempered, but preliminary results for our January 2012 CEO Confidence Index indicate that expectations for business conditions is continuing to rise.
In 2012, just under 69 percent of CEOs expect to see increased revenues, and 42 percent expect that they will increase capital expenditures. CEOs are investing in their businesses and are making acquisitions.
One CEO noted in December, “To increase competitiveness we’ll be turning to increased capital for the first time in years. Business has been robust in the food manufacturing sector and based upon discussions with packaging automation companies, several are increasing their CAPEX spend to improve competitive nature versus relying on personnel and the ever-increasing costs associated with workman’s compensation, healthcare benefits and the like.”
Another CEO spoke directly on why his company will make acquisitions, “Because the demand for our products/services is down or flat, the only way we are getting growth in revenue is by increasing market share through organic and acquisition growth. We manage our expenses well, so in spite of slow revenue growth, we will see better profit growth.”
CEO Confidence Index Metrics, 2011
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