A Deal Maker With a Hot Hand Opens His Wallet

Warren E. Buffett is in no mood to quit.

At 77, Mr. Buffett, the country’s most famous investor, is in the midst of his hottest streak in almost a decade. And he is capping his run with a flurry of deal-making.

On Friday, Mr. Buffett stunned Wall Street by announcing that he would enter the troubled bond insurance business. He also spent about $440 million for a unit of ING Groep, the Dutch financial giant.

Three days earlier, on Christmas, he agreed to buy a $4.5 billion stake in the industrial conglomerate owned by the Pritzker family. And a few weeks before that, he waded into the junk bond market, buying $2.1 billion of debt issued by the TXU Corporation, the electric utility.

As the fortunes of big Wall Street firms sink, Berkshire Hathaway, the holding company that Mr. Buffett runs out of Omaha, is on a tear. Its Class A shares have jumped 27 percent this year, their best showing since 1998, when they soared 52 percent. The Standard & Poor’s 500-stock index, by comparison, has gained a mere 4.24 percent this year.

In a telephone interview on Friday, Mr. Buffett said the timing of his recent investments was a coincidence. Since the credit crisis erupted this summer, he has repeatedly tried to blunt speculation that he might ride to the rescue of an ailing bank or Wall Street firm.

“We had no compulsion at the start of the year to do anything,” Mr. Buffett said. “On the other hand, there was no limit to what we could do.”

Thousands of investors on and off Wall Street study what Mr. Buffett does. It’s no wonder: Over the past four decades he has built Berkshire Hathaway into a $216 billion company with businesses ranging from insurance and corporate jets to ice cream, underwear and Coca-Cola. During that time, his company’s book value has soared by more than 360,000 percent.

Amid the turmoil in the financial markets this year, Mr. Buffett quietly tinkered with his company’s vast stock portfolio, which totaled $78 billion as of Sept. 30.

He has increased his stakes in two major banks, U.S. Bancorp and Wells Fargo, and cast new bets on Burlington Northern, the country’s second-largest railroad, and CarMax, the biggest used-car dealership. On Friday, in addition to announcing his intention to enter bond insurance, Mr. Buffett agreed to buy NRG, a reinsurance unit of ING.

With about $47 billion in cash on hand, Berkshire still has plenty of money for acquisitions. At the company’s annual meeting in May, Mr. Buffett said he would consider a deal as large as $60 billion.

But Mr. Buffett warned on Friday that the crisis that began in the market for housing debt shows few signs of abating. He added that he had decided to establish his own bond insurance company, rather than purchase one, to avoid “buying into anybody else’s trouble.”

Berkshire, which has an AAA credit rating, will enter the business as bond insurers like MBIA and Ambac are struggling to raise capital and protect their gilt-edged ratings. Mr. Buffett said he believes that most of the investments that are available to him in the financial industry “don’t make sense.”

People who follow Mr. Buffett said such wariness is a hallmark of his investing style. He has learned from past mistakes, said Gerald Martin, a finance professor at American University and Texas A&M University.

For instance, Berkshire’s 1998 acquisition of General Re, the insurance company, was marred by a portfolio of complex derivative securities and state and federal investigations into reinsurance policies written by the company. Salomon Brothers, the Wall Street firm that Mr. Buffett was pressed to take control of in the early 1990s amid a trading scandal, was another taxing experience.

Fixing a troubled company has “got to take a tremendous amount of management time,” said Mr. Martin, who in October published a paper on how well investors would have done if they had copied Mr. Buffett’s investment moves. “I can certainly understand him wanting to shy away from it.”

That may explain why Mr. Buffett has decided to start a new bond guarantor rather than take control of one of the many firms already in the business, among them MBIA, Ambac and FGIC. Critics say those bond guarantors do not have enough capital to cover future losses in the mortgage-related securities they have guaranteed.

In recent weeks, credit rating agencies have told some of these firms to raise new capital or risk losing their AAA rating, an outcome that would make it virtually impossible for them to write new insurance policies.

“Credibility is really your stock in trade in this business,” said Jeffrey Houston, a vice president and senior portfolio manager at American Century Investments, a mutual fund company in Mountain View, Calif. “And MBIA and some of the others are operating with a taint on their name.”

Mr. Buffett said his new bond insurance company, Berkshire Hathaway Assurance, would start by guaranteeing bonds in New York State, where regulators have promised to provide the firm with a license by Monday. Berkshire intends to quickly enter other large states like California and Texas. “This may turn out to be something quite large, or it may not,” he said.

Mr. Buffett’s intentions were first reported by The Wall Street Journal on Friday. The news sent the shares of MBIA down $3.53, or 15.9 percent, to $18.74; Ambac shares fell $4.02, or 13.8 percent, to $25.12.

Investors in municipal debt said that Berkshire’s foray into the business would not have an immediate impact on the bond market, which has suffered recently because of the credit crisis and concern about the viability of bond guarantors. But over time the company could prove to be a formidable competitor to MBIA and other companies in the field, said John Miller, chief investment officer of the municipal bond group at Nuveen Investments in Chicago.

“This creates some long-term competition from a clean AAA name,” he said.

Berkshire’s A-shares closed up $3,300, or 2.4 percent, to $141,100. The shares touched an all-time high of $149,200 on Dec. 10 but fell after an article in Barron’s asserted that the stock was overvalued and Mr. Buffett would have a hard time expanding his portfolio.

Among its many holdings, Berkshire owns the auto insurer Geico and has a big stake in The Washington Post Company.