Be fearful when others are greedy. Be greedy when others are fearful.
That sage advice from Warren E. Buffett is a staple of the Oracle of Omaha's investment philosophy. It also sums up the surprising swoop he made yesterday to purchase Constellation Energy Group Inc. as Baltimore's largest hometown company reeled from increasing concerns about its financial stability.
As investors ran scared from Constellation, causing its stock price to plummet by 60 percent since Monday, the man Forbes calls the country's second-richest man saw an opportunity - just as he did when he invested in undervalued companies like Coca-Cola, American Express, Gillette and the Washington Post Co. many years ago.
"It's typical of everything he has done," said Andrew Kilpatrick, author of Of Permanent Value: The Story of Warren Buffett. "He's not buying every day or every week, but he is constantly waiting for the right time to buy. Buffett has been so disciplined all his life and has all this cash, so he can afford to wait. [Constellation's] stock crumbled, as you know. So today, Buffett and his company are striking and they're striking big. It had to be a quick decision.
"There are very few buyers in this world who can cut a check for $4.7 billion right on the spot," Kilpatrick said. "The ability to do it with that much speed, you can be sure it was well-researched. He's always looking for a great company with great management at a great price."
The marriage gives Buffett and his flagship holding company, Berkshire Hathaway Inc., a sizable addition to his growing energy holdings, which he began by acquiring Constellation's new parent, Des Moines, Iowa-based MidAmerican Energy Holdings Co., in 1999. In return, Constellation and Maryland find newfound strength in a triple-A rated conglomerate that has rescued countless other companies from the brink of failure.
In Constellation, Buffett and MidAmerican found what they think is a steal. The last time Constellation put itself up for sale, in 2005, FPL Group Inc. agreed to pay more than $12 billion, before the deal collapsed amid opposition from Maryland legislators.
Buffett has also found a company that falls sharply in line with the type of companies he tends to pluck like tree-ripened fruit: simple to understand, old-line businesses with a long history, near monopolies and high brand recognition. He buys managers and employees as well as brands.
"He never comes in and fires people or changes things, because he wouldn't have purchased it in the first place if he had to do that. He doesn't want to change or make personnel decisions. He's buying it for the long-term," Kilpatrick said.
Look to Buffett's prior investments in soft-drink companies, candy, razor blades and insurance. The bulk of his $50 billion fortune was made on companies making familiar products that consumers know and use every day.
"He likes 'old economy' businesses," said Robert P. Miles, author of The Warren Buffett CEO and two other Buffett-related books. "He likes to put his money where his mouth is. He purchased a billion dollars' worth of Coca-Cola [stock] in 1988 and 1989 and he still has six servings of Cherry Coke every day. He likes to invest in companies that he will keep and hold on to.
"In Constellation, he's found a business that's been around for more than 100 years and will be around for the next 100 years," Miles said. "It's somewhat of a monopoly, it's something everyone needs, and energy is the fastest-growing company component of his company. It now represents 10 percent of Berkshire's revenue. It's a business he's in, a business that's growing and a business that he and his MidAmerican chairman, David Sokol, understand very well. It fits."
Buffett still lives in the same home in Omaha, Neb., that he purchased decades ago for $31,500. He reportedly does not carry a cell phone, does not have a computer at his desk, and drives his own car, a Cadillac.
When his first wife, Susan, died in 2004, Buffett remarried two years later to longtime friend Astrid Menks. He bought the ring at Borsheim's Fine Jewelry in Omaha, which is owned by Berkshire. His daughter said he surely got an employee discount. The 15-minute ceremony was performed by a local judge, there were only two witnesses and, afterward, the newlyweds went to dinner at the Bonefish Grill, a casual seafood restaurant.
Buffett is known for telling his operating chiefs to go run the business, only asking them to transfer excess cash to Omaha and clear major capital spending plans with him. They can call him as much or as little as they like.
"He doesn't call them," Miles said of Buffett's lack of management meddling. "Rather amazingly, he doesn't even visit the business he is buying."
Even as Buffett runs a business that has 232,000 employees around the country, only 19 are based in his Omaha corporate office.
But while there is little interference from Buffett, he didn't make $50 billion by being asleep at the wheel.
As multiple interviews, stories and books show, Buffett is a voracious reader with a sharp memory who expects monthly reports on financials, profit-loss statements, balance sheets and expenditures from all his businesses. He studies all of them carefully, experts say.
"He'll tell them, 'Fire your banker because I'll be your banker,' " Miles said. "He'll tell them, 'Let me know if anything bad is happening in the business - I'll hear about the good stuff myself - and let me know right away.' "
Berkshire companies' operating officers are often compared to U.S. Supreme Court justices: They generally serve for life. The 78-year-old Buffett has been known to joke that he will retire five years after he dies.
In terms of Constellation's murky trading books, which sparked the initial fears about its liquidity, Buffett has a history of being willing to step into what he sees as temporary crisis.
In 1964, when a massive scandal provoked panic selling of American Express stock, Buffett snapped up its shares after observing that customers at a restaurant counter were still using American Express cards.
"The really good news for Baltimore residents and customers of the company is that Constellation Energy will never be sold," Miles said.
"The reason he has that policy is because he wants to attract companies that are concerned about who buys them. He doesn't want someone who is telegraphing that they are more worried about money than they are about the business."
Family: Married (second wife); three children
Home: Omaha, Neb.
Net worth: $50 billion, according to Forbes, which calls him America's second-wealthiest man behind Microsoft's Bill Gates
Nickname: Oracle of Omaha
Company: Berkshire Hathaway
Holdings: Companies include MidAmerican Energy Holdings Co., Dairy Queen, Fruit of the Loom and Geico
Investments: Biggest shareholder of Coca-Cola and Wells Fargo
Philanthropic activities: Has pledged most of his Berkshire Hathaway shares to the Bill & Melinda Gates Foundation and other charities
Sources: Forbes, Berkshire Hathaway, Sun research