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Tuesday, May 19, 2009

Berkshire Scales Back Stock Purchases as Cash Erodes

By Erik Holm

May 19 (Bloomberg) -- Warren Buffett’s Berkshire Hathaway Inc., the largest shareholder in Kraft Foods Inc. and Coca-Cola Co., is scaling back stock purchases after the firm’s cash holdings fell to their lowest in more than five years.

Berkshire is spending less as the firm comes closer to the $10 billion that Buffett says is the minimum he wants on hand to protect against calamity. The cash hoard, which had been at $47.1 billion in September 2007, fell below $20 billion in April after the company posted its worst loss in at least 20 years and Buffett directed funds to corporate debt and preferred stock.

“He’s tapped out,” said Jeff Matthews, author of “Pilgrimage to Warren Buffett’s Omaha” and founder of hedge fund Ram Partners LP. “He had to sell some of his stocks to buy stuff last fall. That’s why he’s not been making big stock purchases.”

Berkshire spent $624 million on equities including Wells Fargo & Co. in the first quarter, the smallest amount since at least 2005, according to regulatory filings by the Omaha, Nebraska-based company.

Buffett is instead locking in returns of 10 percent or more by investing in preferred shares of Goldman Sachs Group Inc. and General Electric Co. and buying similar securities sold by Swiss Reinsurance Co. He’s also purchased debt in companies including candy manufacturer Mars Inc. and wallboard maker USG Corp. Such deals since September collectively pay interest of more than $1.8 billion annually.

“Berkshire, basically, every month generates cash,” Buffett said at a press conference May 3, the day after the annual shareholder meeting in Omaha. “We have not been buying a lot of equities.”

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