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RVB's Market Musings

What began here as an avenue to interact and learn has far exceeded those goals.

If you are a prospective employer, please consider this site a place where you can see my passion for investing...

Tuesday, February 20, 2007

Buffet buys UNH?

This headline last week confused me. Warren Buffet bought shares of United Health (UNH)? What?

This seems out of character for Warren. UNH has a technology product (Ingenix). Granted, he's old (76) and probably knows alot about health care costs. He certainly likes to invest in things he knows - that's one of his famous teachings. Another of his, is to picture "where the business will be in 5 years". This explains his purchase of BUD. He knows that in 5 years, people will still be drinking plenty of beer. Same goes for Coke, See's Candy...the list goes on.

It's also what I find confusing here. I mean, can you say that in 5 years you know that UNH will be around? Probably. But 10 years from now? Investing in managed care businesses comes with a huge array of fiscal policy risks. In fact, fiscal policy is directly responsible for making HMO's the great investment they've been during the Bush administration.

But what if, in 20 years, we figure out that our privatized health care experiment doesn't work and we decide to build a new system a la Canada? Ok, a stretch, but not completely impossible. However, it wouldn't even take that for the managed care investment to go awry. The dems hate Medicare Advantage and significant cuts could wound some HMO's (albeit it would hurt UNH alot less than Humana, for example). (I fully expect this to happen, btw)

So, while the stock is up 4% from the announcement of Buffet's buy, I must admit that I still find this one out of character for the world's second richest man. Then again, he didn't get to be that way by worrying about my thoughts...


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