Comeback Crusader

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Somewhat lost on Buffett's new stage of influence is the plight of the typical investor, who just wants to learn a thing or two about the market. Yes, Buffett still says plenty about how to find value, and his archive of letters on the Net amounts to a timeless library on the issue. Investors can piggyback Buffett by investing in Berkshire — if, that is, they can muster the $61,700 it takes to buy a single "A" share. Even the "Baby Berks," or "B" shares, which carry reduced voting rights and grant no say on the company's charitable giving, cost $2,065 apiece. Mimicking Buffett was much easier when he was buying common stocks like Coke, American Express, Gillette, Wells Fargo and Washington Post — his largest stock holdings today.

Buffett plainly warns against do-it-yourselfers' venturing, as he has, into concentrated positions in the junk bonds of individual companies. "These are not, we should emphasize, suitable investments for the general public," he wrote in last year's annual letter, in which he copped to having bought 13% of the debt of bankruptcy-bound financial-services firm Finova. But investors can approximate this kind of investment by buying a diversified junk-bond mutual fund.

So what's Buffett doing right now? He still picks up small stakes in the occasional common stock, like Best Buy and PNC last year. "I'd be surprised if he hasn't got more exposure to junk bonds," says Russo. "And what this tells us is, now is a good time to buy distressed assets." That message also seems clear in Buffett's recent investments in fiber-optic company Level 3 and energy firm Williams Cos., both strapped financially. These are public companies, but Buffett did not buy their common stocks. He holds non — publicly traded securities in each — convertible bonds in Level 3 and convertible preferred stock in Williams. Buffett also cherry-picked a prize gas pipeline from Williams and another from distressed energy company Dynegy. These investments do not necessarily point to broad value in any particular industry. Level 3, for example, is an unusual play on the world's vastly overbuilt fiber-optic networks. Buffett believes Level 3 will be one of the few left standing in this area. But he's collecting 9% annual interest while he waits. The common stock is far more risky.

Buffett's bigger plays have been in buying whole businesses, which suggests that he sees private-asset values as a bargain while the public markets have not yet become cheap. But take heart. Maybe after he cleans up how America's largest companies are run he will want to buy their common stocks again.