Monday, November 10, 2008

Do You Want To Feel Smarter than Warren Buffett?

A long time ago, in a galaxy far, far away Warren Buffett bought $5 billion of preferred stock of Goldman Sachs at $115 way back on 9/28/08 - FIVE WEEKS AGO! Warren gets $500 million a year in mandatory dividends and the preferred stock is callable at a 10% premium. Mr. Buffett also took warrants for another $5 billion of common stock at $115.

My concerns when I saw this deal were A) the price to Goldman and B) Buffett's limited understanding of the balance sheet at Goldman. Clearly, Mr. Buffett is a wildly successful businessman, but anyone that says they won't buy a stock like Google "because I can't understand it" but thinks he can understand the on and off balance sheet moves at Goldman is delusional.

Well any way, if you think Mr. Buffett got a good deal then you can now do about 40% better. Goldman's stock has traded steadily lower as of late - now around $70. This isn't an endorsement of Goldman or an indictment - I don't know if it's going to $200 or $2 - but I think it's interesting that even the Oracle of Omaha can be guilty of trying to pick the bottom a little too early.

No comments: