Is this a sign? Warren Buffet can’t do wrong, can’t he? 

Here’s to hoping. However, I think there is still lots of messes to get cleaned up in this market.
Let’s also remember that W. Buffet is an investor. He can see the value in GS at these prices. He will make his money; it’s just a matter of time. 

[quote author=“Play Ultimate”]Here’s to hoping. However, I think there is still lots of messes to get cleaned up in this market.
Let’s also remember that W. Buffet is an investor. He can see the value in GS at these prices. He will make his money; it’s just a matter of time. 

Still, as an investor, I don’t think he would put $5 billions of his money in a market that’s about to collapse. If this is not a bottom, it might be the worst investment of his life and very bad news for the rest of us…

[quote author=“pasdeniaisage”][quote author=“Play Ultimate”]Here’s to hoping. However, I think there is still lots of messes to get cleaned up in this market.
Let’s also remember that W. Buffet is an investor. He can see the value in GS at these prices. He will make his money; it’s just a matter of time. 

Still, as an investor, I don’t think he would put $5 billions of his money in a market that’s about to collapse. If this is not a bottom, it might be the worst investment of his life and very bad news for the rest of us…

I agree that it may be at, or very near, the bottom. It may just some time to start moving up.

http://bigpicture.typepad.com/comments/2008/09/i-got-75b-but-i.html

Thanks for the link. This does not surprise me in the least.

Re: Warren Buffet invests $5 billion in GS: Is this The bott

[quote author=“pasdeniaisage”]Is this a sign? Warren Buffet can’t do wrong, can’t he? 

Mr. Buffet is very, very good but not infallible.

[quote author=“NYTimes”]But Mr. Buffett, 78, has also learned from past mistakes in the financial sector. For instance, Berkshire’s 1998 acquisition of General Re, the insurance company, was marred by a portfolio of complex derivative securities and state and federal investigations into reinsurance policies written by the company. Salomon Brothers, the Wall Street firm that Mr. Buffett was pressed by the government to lead in the early 1990s amid a trading scandal, was another taxing experience.

Re: Warren Buffet invests $5 billion in GS: Is this The bott

[quote author=“awcabot”][quote author=“pasdeniaisage”]Is this a sign? Warren Buffet can’t do wrong, can’t he? 

Mr. Buffet is very, very good but not infallible.

[quote author=“NYTimes”]But Mr. Buffett, 78, has also learned from past mistakes in the financial sector. For instance, Berkshire’s 1998 acquisition of General Re, the insurance company, was marred by a portfolio of complex derivative securities and state and federal investigations into reinsurance policies written by the company. Salomon Brothers, the Wall Street firm that Mr. Buffett was pressed by the government to lead in the early 1990s amid a trading scandal, was another taxing experience.

WEB sold off almost all the General Re derivatives long ago (about $300 million IIRC).  I love owning BRK.  You get WEB as your “fund” manager at no expense ratio.  The best “mutual fund” one can own IMO.

Re: Warren Buffet invests $5 billion in GS: Is this The bott

[quote author=“incorrigible”]WEB sold off almost all the General Re derivatives long ago (about $300 million IIRC).  I love owning BRK.  You get WEB as your “fund” manager at no expense ratio.  The best “mutual fund” one can own IMO.

Which is why owning BRK is an excellent idea, but GS is a bit riskier. BRK will do well down the line, but GS might be the one company that goes bad in the BRK portfolio.

Inside Buffett’s deal for Goldman…

Last night, Warren Buffett announced Berkshire Hathaway (his holding company) would take a $5 billion position in Goldman Sachs. Before you rush out to buy Goldman’s stock, you should consider a few points…

First, you can’t buy the kind of stock Buffett got on any market, anywhere in the world. Berkshire Hathaway is buying $5 billion of perpetual preferred stock with a 10% coupon. These shares are senior to both Goldman’s other preferred stock and its common stock. That means no other shareholders will receive any dividends until Buffett has been paid his 10%, in full, each year.

And that’s not all… To sweeten the deal for Buffett, Goldman agreed to include a warrant (a long-term call option) that entitles Berkshire Hathaway to buy an additional $5 billion in regular common stock, at $115 per share. (Goldman’s trading for about $130 now.) Thus, if Goldman can turn things around, Berkshire will receive an enormous payday down the road. It will be entitled to buy stock at $115, no matter what the price has risen to five years from now.

Most investors have no idea what this means. When they read about a warrant being granted, they just shrug. They can’t do the math to figure out how much Goldman has given to Berkshire. It’s like reading Greek to most people. So let us tell you what no newspaper will…

The value of an option to buy stock in the future at a fixed price is based almost entirely on the duration of the option. The further out you go in time, the more valuable they become. Right now, the only similar options you can buy on Goldman are $120 calls that expire in January 2011 ? about two and a half years from now. These options would cost you $42 to buy today.

Using these options as a rough guide, our options trading expert, Jeff Clark, estimates the options Buffett received from Goldman are worth about $78 each. On a $5 billion position, that’s a total value of $3.2 billion.

In other words, Buffett received a security worth about $3.2 billion in exchange for his $5 billion investment in a high-yielding preferred stock. His net exposure is only $1.8 billion. On this capital at risk, he’s getting paid $500 million per year. That’s a 27.7% annual return. And he may eventually end up owning 10% of the company.

What’s Buffett’s risk? Well, thanks to the government bailout, he probably doesn’t face any. Buffett said he wouldn’t have purchased Goldman unless he was sure Congress would do the “right thing” by approving the $700 billion bailout. The right thing for whom?

I’ve watched Buffett carefully for nearly 15 years. And this is probably the best deal I’ve ever seen him get, which tells me Goldman was in even worse shape than I’d imagined. (See our discussion of this in the mailbag, below.) As Buffett proves time and time again, there are big advantages to holding cash and waiting for inflection points in the market. Too bad I can’t make a living publishing an investment newsletter that only makes stock picks once every 10 years or so. It would be the best investment letter you could buy.

Tan, this is directed at the article, not you…
So Mr. Buffet got a good deal. In return he invested $5 billion turning a perceived casino into a respectable bank. Oh wait, that was the Federal Gov’t that did that just the day before. Because of this change in their business model, combined with their golden reputation, GS became a huge value play. He deserves a good deal for putting his assets on the line at the moment of truth. Saying, “I think they must have been in more trouble than I thought,” is pure conjecture in the spirit of Jim Cramer and the a-holes we put up with publishing iFud on SJ’s health. If they were “in so much more trouble” this would be the HRH, The Crown Prince of Saudi Arabia investing and not Warren Buffet. Ala Citibank, if you catch my drift.

I appreciate an author clarifying the details of the deal. We don’t need or ask for his personal opinion about the “health” of GS.