Warren Buffett is widely regarded as being the most successful investor of all time, so when he moves, the market watches intently. That was certainly the case on Tuesday when Buffett, CEO of U.S. conglomerate Berkshire Hathaway, made his first investment in the Australian market at the ripe old age of 84.
In a landmark move that has since dominated the financial news headlines, Berkshire Hathaway paid $500 million to acquire a 3.7% stake in general insurance business Insurance Australia Group Ltd (ASX: IAG), giving it the rights to 20% of IAG's consolidated gross written premiums.
While you can read more about the intricacies of the purchase here, it was another one of Buffett's comments that will likely have investors even more intrigued. In an interview with the Fairfax press after the announcement was made, Buffett, otherwise known as the "Oracle of Omaha" said:
"If you come back in two or three years, you will find we have got four or five Australian equities."
He added that: "Banking is something I have looked at. I am comfortable with banks. We have some big positions in US banks… I'm looking at (Australian) banks, I would say there is a good chance that five years from now, we will have bought one or more positions in Australian banks."
Even more encouragingly, Buffett expects Berkshire to receive $2.2 billion annually from its deal with Insurance Australia Group, which he intends to reinvest back in Australian businesses.
Buffett rarely loses
As previously mentioned, Buffett is widely considered as being the greatest investor to have ever walked the Earth. Indeed, Berkshire managed to achieve a remarkable 21.6% compounded annual gain from 1965 to 2014, which equates to a massive 1,826,163% gain (you read that correctly). That means that $1 invested in 1965 in Berkshire shares would now be worth approximately $18,261.
Indeed, Buffett is a human being and makes mistakes just like the rest of us. But those mistakes are something of a rare occurrence, meaning that he rarely loses. This is largely due to his ability to see the forest for the trees, and to focus on the long-term whilst ignoring any short-term fluctuations.
Given their heavy falls of late, Buffett's comments are likely to spur the market's interest in the Big Four banks based on the belief that they could be among his next targeted acquisitions.
Personally however, I believe he will wait for a more opportune time to buy them. Not only is it the wrong time of the cycle to buy the bank stocks, I also believe that Australia and New Zealand Banking Group (ASX: ANZ), Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd. (ASX: NAB) and Commonwealth Bank of Australia (ASX: CBA) remain expensive investment prospects, which will struggle to generate market-beating returns from their current price tags.
Nonetheless, Buffett's comments are a welcome sign for Australian equity investors who have endured a sharp fall in the market in recent times. In case you needed any more encouragement to buy shares while they're on the cheap, consider this from Buffett, also cited by Fairfax:
"There is money to be made in Australian equities over the next 10, 20, or 30 years."
