Once again, the old pro is showing us how finance is done!

Warren Buffett has made a bid to buy Constellation Energy Group (NYSE: CEG), the largest wholesale power seller in the U.S., after the company’s stock has fallen as much as 80% in value in less than 1 week.

Talk about the ultimate bargain hunter.

I’ve been a Buffett follower since I began investing because this guy’s investment philosophy never seems to go out of style.  He has become a living legend by buying excellent companies with solid cash flow during times of extreme pessimism and/or trading at a substantial discount.

If you are not familiar with Buffett’s strategy, it can best be explained by the following quote:

If you’re going to buy the farm, buy during years of drought rather than years of plenty.  Buy it as cheaply as you can. - Paraphrased from a CNBC interview on Aug 22, 2008.

Buffett had previously made it known he was interested owning nuclear power facilities in his Berkshire Hathaway holding company, and with CEG owning natural gas and nuclear power facilities in the greater Baltimore area, it seems like a natural fit.  With the current energy crisis, and the nonstop political rhetoric to revamp our nation’s energy policy to ween ourselves from foreign oil, it’s not surprising to find Buffett diversifying into nuclear energy facilities that will generate positive cash flow from day #1.

Bottom line, Buffett is buying a company who has a very promising future that suddenly presented itself at a huge discount.  Best part, it took less than a week to pull the trigger!

That’s great, but what can I learn from this?

Just because you’re not the world’s richest person or you don’t manage a multi-billion dollar holding company, doesn’t mean you can’t take advantage of similar opportunities.

1. Buy companies whose stock is selling at a steep discount.  I’m not suggesting you run out to buy every company whose stock has fallen 5% off it’s highs, but learning to buy on the dips (just like Buffett with CEG) is a well proven strategy.  Just make sure you do very thorough research or run the idea by your financial adviser.
2. Buy real estate if bargains present themselves.  If you live in an area affected by the sub prime mortgage crisis, or found a fixer-upper and you’re dying for an excuse to buy a bad ass tool belt, consider buying an investment property.  Historically, real estate is an exceptional wealth builder as well as a proven method of providing multiple income streams.  I’m even considering buying an investment property at my alma mater because I would have a steady stream of new renters each fall.
3. Buy a gas guzzling SUV.  It’s certainly not the most popular mode of transportation right now, but it could be the perfect time to buy an SUV due to high gas prices causing panic selling among current SUV owners.  Many people still choose to drive these behemoths because they live in inclement weather climates or need the extra cargo capacity because they have a large family.
4. Stock up on food staples during big sales.  Every now and again, my local grocery store will offer ridiculous savings on something I love, and I buy tons it (mint milano cookies are my weakness).  Keep a mental inventory of what you have in your cubbards and stock up when the opportunity presents itself.

Got another situation where bargain hunting or buying on the dips has worked for you?  Let’s hear them.…

Questions / Comments / Concerns ?

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