NEW YORK (CNNfn) - Billionaire Warren Buffett, best known for investing

conservatively in undervalued stocks, has fixed his sights on junk bonds, the Wall
Street Journal reported Friday.

Buffett's Berkshire Hathaway Inc. recently paid several hundred million dollars for the
junk bonds of commercial lender Finova Group Inc. (FNV: Research, Estimates), and
has also bought bonds issued by insurance company Conseco Inc. (CNC: Research,
Estimates), the newspaper said.

This year's steep drop in the value of junk bonds has gotten the attention of investors
looking for bargains, though many of them already have large stakes in the bond
markets. Buffett's move shows that junk bonds are starting to draw "value" investors
who usually shun securities such as high-yield, high-risk bonds and park funds in
stocks of big companies and other, generally safer, investments, the Journal said.

Buffett reportedly keeps several billion dollars of cash on hand, which gives him the
ability to come in quickly on particular opportunities. Hathaway agreed to buy
building-products maker Johns Manville Corp. for about $1.9 billion earlier this
month, for instance, the paper said.

Buffett has actively invested in financial institutions, so it is little surprise that Finova
became a potential investment. When Finova bonds fell in October to the low 60s
from more than 70 cents on the dollar, Buffett spent several hundred million dollars
on the bonds, the report said.

graphicA spokesman for Berkshire Hathaway declined to comment, according to the

Journal.

Omaha, Neb.-based Berkshire Hathaway is primarily an insurance company with

ownership of a range of businesses ranging from Dairy Queen to Justin Industries, a
bricks and boots manufacturer.

While Buffett's move into junk bonds is rare, it is not unprecedented, the report said,
noting he bought $139 million of Washington Public Power Supply System bonds,
known as "Whoops," in 1983, earning a handsome return.

Buffett and his company came back this year after a rough patch. Berkshire's Class A
shares (BRK.A: Research, Estimates) closed at $69,700 Thursday, up 69 percent from
March 10, the paper noted. Graphic

Despite these comments, however, the Oracle of Omaha has also engaged in some
short-term trading activity, which generated impressive returns for investors.

Short-term trading

Just after the dot-com bubble burst in the early 2000s, Buffett decided to move quickly to
take advantage of the opportunities that had emerged in the junk bond market. In his 2001
letter to shareholders of Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B), he wrote:

"During 2001, we were somewhat more active than usual in 'junk' bonds. These are not, we
should emphasize, suitable investments for the general public, because too often these
securities live up to their name."

He goes on to say in the letter this is an area where Berkshire Hathaway has had some
success before:

"So far, our 50-year experience in distressed debt has proven rewarding. In our 1984
annual report, we described our purchases of Washington Public Power System bonds
when that issuer fell into disrepute. We've also, over the years, stepped into other apparent
calamities such as Chrysler Financial, Texaco and RJR Nabisco ¾, all of which returned to
grace. Still, if we stay active in junk bonds, you can expect us to have losses from time to
time."

He then went on to describe one opportunity Berkshire Hathaway was taking advantage of
at the time:

" In late 2000, we began purchasing the obligations of Finova Group, a troubled finance
company, and that, too, led to our making a major transaction. Finova then had about $11
billion of debt outstanding, of which we purchased 13% at about two-thirds of face value.
We expected the company to go into bankruptcy, but believed that liquidation of its assets
would produce a payoff for creditors that would be well above our cost. As default loomed
in early 2001, we joined forces with Leucadia National (Trades, Portfolio) Corp. to present
the company with a prepackaged plan for bankruptcy."

Later, in his 2003 letter to investors, Buffett disclosed that in 2002, Berkshire acquired a
sum total of $8 billion in junk bonds very quickly. These bonds almost immediately made a
profit for the investment vehicle. By the end of 2003, holdings had reduced to just $1.14
billion.

Should have used a shotgun

In the following years, Buffett admitted he had made a mistake. Rather than buying just $8
billion, he said he wished he had invested another $8 billion to take advantage of all the
opportunities that were offered at the time.

According to Bob Goldfarb, one of the founding members of the Sequoia Fund, Buffett later
said he probably should have used a "shotgun rather than a rifle" to take advantage of the
opportunities in the market (though he also admitted the Oracle of Omaha didn't use these
exact words).

Bill Ruane, another founder of the Sequoia Fund, whom Buffett personally picked to
manage the money of Buffett Associates Ltd.'s partners when he decided to exit the
business, added some more color to the guru's short-term junk bond trade at the firm's
2005 meeting:

"He put about $7 billion or $8 billion to work and he wished he had gone ahead and bought
another $7 billion or $8 billion. They were yielding 30%, and he sold them when they were
probably yielding 6% or 7% a couple of years later. And he made billions. You know, that
would get a lot of attention if it was a stock trade."

Many concentrate on Buffett's most significant investment successes when they are
evaluating his past performance. There are, however, many smaller trades he has
executed over the years that have made billions for Berkshire shareholders. The early
2000s junk bond trade is just one example.