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Where Warren Buffett Is (and Isn't) Putting His Money Now

The David Sokol/Lubrizol mess cast a very long shadow at the 2011 Berkshire Hathaway annual shareholder meeting. But when you've got the patience of Warren Buffett and Berkshire vice chairman Charlie Munger to stay on stage for nearly six hours answering questions, that still left plenty of time for the Oracle of Omaha to say discuss actual investing matters.

From his view on the banking sector, the value of gold as a long-term investment, and whether he's been participating in the oil rush, Buffett wasn't short on opinion. Here are his key investing insights he shared at the annual meeting, culled from the live-blogging efforts of The New York Times, the Wall Street Journal and Morningstar:

But he's more than happy with two of Berkshire's largest stock holdings: U.S. Bancorp and Wells Fargo. In fact, concurrent with the annual meeting, Berkshire released its preliminary 2011 first quarter earnings results that show the conglomerate increased its stake in Wells Fargo (WFC) by nearly 5 percent, to 358.9 million shares.

  • Gold? You can't be serious. Buffett drolly noted: "Gold and Berkshire A stock were once very close in price several decades ago. Gold has a way to go before catching up." And he made it clear that he didn't think gold had much of a chance to do just that. In yet another classic bit of Buffett wonkiness, he added "...if you take all of the gold in the world and put it into a cube, it would be about 67 feet on a side and you could get a ladder and get up on top of it. You can fondle it, you can polish it, you can stare at it. But it isn't going to do anything... All you are doing when buying commodities, like gold, which are assets that cannot do anything, is hoping that someone else will pay you more for it down the road." Buffett sidekick and Berkshire Vice Chairman Charlie Munger chimed in with his two cents here, saying "there's something peculiar about an asset that will really only go up if the world really goes to hell."

  • Oil? I'll leave that to others. Buffett noted that some of Berkshire's subsidiaries hedge oil -- and he's more than fine with that -- but he's not interested in hedging as an investment tool for the mother ship. "I really think that an intelligent person can make more money over time thinking about productive assets instead of speculating on commodities, or fixed-dollar investments for that matter," he said.

In fact, Buffett crowed in this year's annual shareholder letter that there's a pretty good chance that within 10 years, Berkshire will be paid more annually in Coca-Cola dividends than what Buffett originally paid for the stock. Yet Buffett reiterated that he is still in no hurry to start having BRK pay a dividend itself as he remains confident he can generate more value for shareholders by investing a dollar than giving it away. But he did leave the door open a tad. "There will come a time, who knows how soon, when we do not think we can lay out $15 billion to $20 billion a year and get something that's immediately worth more than that for our shareholders," Buffett said.

  • Treasurys are boring but useful. Buffett reiterated that the bulk of the firm's massive cash hoard is sitting in Treasury bills earning next to nothing.

"All choices are lousy for short-term money, but we don't fool around. [It's] irritating to get paid nearly nothing, but [last thing we want to do is reach for basis points. It's just a parking place that is unattractive, but we know we'll get our car back when we need it," he said.

And let's remember that having some liquidity at your beck and call can come in quite handy. Berkshire's big cash hoard in 2008 allowed it to play the sly white knight during the financial crisis riding in with massive cash infusions for General Electric and Goldman Sachs, investments that earned Berkshire a 10 percent annual dividend, or about 10 times what cash is paying these days. Cash also makes for a fully loaded elephant gun that lets you bag the Lubrizols of the world without having to issue stock to pay for an acquisition. (On a semi-related note, Buffett did not have nice things to say about firms that issue stock to pay for deals -- as Johnson & Johnson and Exelon have both recently announced they will do in takeover deals. Morningstar analyst Gregg Warren noted that's a tipoff Buffett considers Berkshire stock to be undervalued; you don't give it away when you think it's going to be worth a lot more.)

  • Yes, the dollar is headed lower. But that doesn't make it an easy short. Buffett has long been on the record as saying he doesn't expect the dollar to regain any value given the likelihood we're heading to higher inflation. But he's not betting against the dollar, either. "There's no question the purchasing power of the dollar will decline, but I think the purchasing power of many currencies around the world [will also decline]," he said. And since he has no strong position on whether the dollar will fall more than other currencies, he isn't interested in shorting the dollar.
I'll leave you with one Buffett riff from this year's annual meeting that seems incredibly timely and destined for the ever-growing list of great Buffett quotes: "Rising prices can be infectious. Rising prices can influence behavior. But rising prices, in and of themselves, are not the best way to look to invest for the future." Something to keep in mind if you've been sucked into the gold/oil/stock run-up of late.

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