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Warren Buffett's $3B Goldman Anniversary


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I love the chart in that article showing, how, at the low point of Goldman's stock price, the warrants had a "negative" value of almost $3 billion.


This, of course, reveals a complete and total lack of understanding of these instruments.  The value of the warrants could never drop below zero.  Berkshire can't lose money on the warrants. 


Of course, the value of the preferred could drop to zero and Berkshire could lose $5 billion there but that is not affected by (though might be correlated with) changes in Goldman's stock price -- only its solvency.


In any case, Berkshire has also collected $500 million for the preferred in the last year.  It will collect an additional $500 million when the preferred is paid back (at Goldman's option) and $500 million each year until such date.


Finally, I've always assumed that -- as long as Berkshire plans to hold Goldman stock after the conversion date -- the warrants won't be exercised until the last possible moment....why would Buffett give up the opportunity to invest $5 billion elsewhere  -- even in treasuries paying only a few basis points -- until the last possible moment.


Nevertheless, at least CNBC is reminding everyone Buffett hasn't lost his touch....

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