Rhinophobia Summary and Analysis

After the October, 1987 crash, Wall Street rallied with a new wave of leveraged buyouts. Cast to fund these came largely from the sale of junk bonds and "zero coupon bonds," by which sellers could hold off paying any interest for years. Buffett took short-term advantage of a proposed buyout of RJR Nabisco by purchasing the stock before the buyout and selling it after the stock jumped. He refused to participate further in such activity but found himself with an overload of cash and no place to put it. In investment circles, this is known as "rhinophobia," the fear of having too much cash on hand and the temptation to do something with it, even if that something is not particularly wise. Buffett succumbed, and Berkshire purchased convertible preferred stock in Gillette, USAir, and Champion Paper, all of which were being threatened...