Tuesday, November 11, 2008

Has Warren Buffett's Hot Hand Finally Gone Cold?



Warren Buffett, 78, through his investment vehicle Berkshire Hathaway (BRK.A-$109,000), spent billions buying stakes last month in Goldman Sachs and General Electric? As recorded in the third-quarter 2008 regulatory filing:

On October 1, 2008, Berkshire invested $5 billion in Goldman Sachs perpetual preferred stock. The preferred stock has a stated dividend rate of 10% and is callable at any time at a 10% premium. Berkshire also acquired warrants to purchase $5 billion of Goldman Sachs common stock at $115 per share.

On October 16, 2008, Berkshire invested $3 billion in General Electric Company perpetual preferred stock. The preferred stock has a stated dividend rate of 10% and is callable after three years at a 10% premium. Berkshire also acquired warrants to purchase $3 billion of common stock at $22.25 per share. The Goldman Sachs and General Electric warrants are exercisable at any time over five years. These investments were funded with available cash balances.

Where others see junk, Buffett looks for opportunity. Did the Oracle from Omaha move too quickly? Goldman Sachs, which will report an unexpected loss in the fourth-quarter 2008, has lost 43 percent in value in the last month; shares in General Electric are also trading 18 percent below the stated exercise price.

“If a business does well, the stock eventually follows.” – Warren Buffett

Legendary for his patience, Buffett can afford to wait for a turnaround, as he is receiving a yield of 10 percent on his preferred holdings.

Editor David J Phillips does not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy.

1 comment:

JRC said...

as referenced in his op-ed article, the oracle of omaha has no clue, nor does he pretend to know, about the short-term movements of the stock market. He is a long-term value investor, who will hold on to GS and GE for quite some time, collecting a ten-percent dividend, until he sees fit to dispose of them (which I assure you, is not anytime in the next 12 months.) The warrants will be worthless of course, but so be it.