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Buffett’s Berkshire Agrees to Buy $250 Million in Tiffany


Investmentacct
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He's still got a boatload of equities, so I wouldn't worry about that.  I think the fact that you can find bonds and preferreds with terrific yields and far less risk is probably the point of his transactions. 

 

Most of what we've been buying over the last month has been distressed debt...the yields are unbelievable!  We bought some debt maturing in three months at 73 cents on the dollar, where the company has enough in cash, receivables and lines of credit to cover their debt for the next year.  Just ridiculous!  That's about a 145% annualized yield!  But you have to buy a basket of them to reduce any single one exploding in your face.

 

If Buffett or Prem can get 10-15% yields on preferred stock or notes from companies like Goldman Sachs, GE, Tiffany's, etc., then why bother running the risk of increased equity exposure.  Especially if you are running a leveraged insurance business where 6-10% total yield for the portfolio will give you 15-25% ROE going forward.  Cheers! 

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"The global credit crunch has caused some of the firms that typically compete with Berkshire for deals to pare back on buying corporate debt and equity. That’s allowed Berkshire to command atypical returns from companies that need Berkshire’s capital or want to reassure shareholders with an endorsement from an investor of Buffett’s renown."

 

Now there is an intangible asset you won't find recorded on Berkshire's balance sheet.  Something to think about for those who try to value Berkshire shares based on book value.

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  • 2 weeks later...
Guest kawikaho

Hey Sanjeev,

 

I'm new to the corporate bond market.  What happens in the case that a bond blows up on you?  Does it just default?  If it defaults, how badly does the price of the bond get affected? 

 

What is the lowest bond rating you guys look at?  BBB+? 

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