Berkshire's Elephant Gun Fires(NYSE: BRK.A) (NYSE: BRK.B) (NYSE: LZ)

NEW YORK - Warren Buffett the legendary investor from Omaha Nebraska known as the Oracle of Omaha for his ability to predict the future, stated in his most recent annual report "we’re prepared. Our elephant gun has been reloaded, and my trigger finger is itchy." Buffett's finger pushed down on the trigger on Monday, as his company Berkshire Hathaway announced the purchase of Lubrizol for $9.7 billion all cash. Buffett is holding true to his belief that the worst investment is cash.

The deal was made at a 28% premium to Friday's closing price and includes $700 million of assumed debt. The deal is the second largest in Berkshire's history, after its purchase of Burlington Northern Santa Fe Corp for $26 billion in 2009. Buffet said "Lubrizol is exactly the sort of company with which we love to partner -- the global leader in several market applications run by a talented CEO, James Hambrick,"

Lubrizol produces and supplies lubricant additives for engines, and provides industrial lubricants for gasoline and diesel. The company also makes ingredients for personal care products and resins for plastics technologies.

The deal values Lubrizol at 13.2 times current earnings. Allan Edwards the CEO of The Markets Are Open says the fair value of Lubrizol is $9.5 billion meaning Buffett slightly overpaid on fair value which is incredible. Edwards continued "look what Bank of Montreal paid for Marshall Ilsley, they got one of the worst banks in the U.S. for a premium price and on top of that, they issued their discounted stock. Buffett acquires great companies at fair prices." Since Buffett has a much of a longer time horizon than the average investor, the price is actually significantly cheaper to him. Buffett knows this investment will pay for itself in the next 10 years and after that Berkshire will make a steady amount of profit from its investment. Buffett realizes that there are two prices for a company 1) is what investors will pay and 2) is what businesses will pay for an entire company. Ignoring illogically traded stocks such as Netflix, investors will often not pay the same price that a private company would pay for a stock.

Buffett also likes business which are not capital intensive, like Lubrizol. This means Berkshire will be able to use the excess cash from Lubrizol's operations for other purposes.