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Berkshire Makes 40% Return on GS Warrants!


Parsad
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For those watching the ORH / FFH portfolios closely, you may want to take a look at WSC and get comfortable with what they own (it's simple, 6 stocks + GS warrants/preferred). Not as statistically cheap, but depending on how you feel about the underlying investments, the valuation is compelling.

 

I own a small bit purchased in the $280's.

 

Ben

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In reality Buffett has made more than 40% since in addition to the intrinsic value of GS warrants (market price of common = $165 in excess of strike price of warrants = $115), the warrants also contain a time value component of value (even when the underlying common stock trades below the strike).

 

The interesting thing is that Wesco Financial also owns $205 million of these convertible preferreds and this investment is big enough that Charlie breaks out the fair value of it with each 10-Q/10-K (though you have to back out the value of other non-listed equity investments like AXP, JNJ) that WSC owns.

 

At year end 2008, the fair value of the GS preferreds was listed at $209,510.  This means the warrants were given a value of $4.510 million while the underlying GS common was trading at $84.39.  Since WSC owns 1.78 million warrants, this means they were given a value of $2.53 per warrant.

 

At 3/31/2009, using the same methodology the warrants were valued at $32.577 million ($18.30 per warrant) while the underlying GS common was at $106.02.

 

So it looks like time value which decays over time are probably worth around $20 per warrant now if I just swag it.   Add in $50.84 of intrinsic value per warrant as I write this -- and I get an approx. total value per warrant of over $70.80 per warrant.

 

BRK owns a total of 43.478 million GS warrants for a total market value of around $ 3 billion+.   That's more like a 60% return (not including the straight 10% annual dividend return on the preferreds).  Not bad for the old man who supposedly lost it when he bought the GS preferreds, eh?

 

wabuffo

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http://news.moneycentral.msn.com/provider/providerarticle.aspx?feed=OBR&data-ipsquote-timestamp=20090624&id=10062364

 

 

Last September, Goldman agreed to sell Berkshire $5 billion of preferred stock carrying a 10 percent annual dividend, and warrants to buy $5 billion of common stock at $115 per share.

 

"We'll make a lot of money off Goldman," Buffett said.

 

 

It was at that point that I decided to up my Berkshire stake.

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  • 3 months later...
Guest misterstockwell

http://news.moneycentral.msn.com/provider/providerarticle.aspx?feed=OBR&data-ipsquote-timestamp=20090624&id=10062364

 

 

Last September, Goldman agreed to sell Berkshire $5 billion of preferred stock carrying a 10 percent annual dividend, and warrants to buy $5 billion of common stock at $115 per share.

 

"We'll make a lot of money off Goldman," Buffett said.

 

 

It was at that point that I decided to up my Berkshire stake.

 

In hindsight, it would have been much better to up your Goldman stake!

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I wonder what effect this series of articles will have on the company????

http://www.npr.org/blogs/thetwo-way/2009/11/mcclatchy_digs_into_goldman_sa.html

 

This is the McClatchy description of the series:

 

"A five-month McClatchy investigation reveals how Wall Street colossus Goldman Sachs peddled billions of dollars in shaky securities tied to subprime mortgages on unsuspecting pension funds, insurance companies and other investors when it concluded that the housing bubble would burst."

 

"Unsuspecting pension funds, insurance companies"? Gimme a break! These are not widows or orphans; they are big boys who are paid big bucks to do a good job.

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Big boys become big by going to good universities where they butcher the hell out of finance so who is really to blame?  BETA=Risk and Jeremy Siegel is not demented in the academic world...

 

Isn't the whole point of a good college education to learn how to think for yourself and not just drink all the kool aid you are served?

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Isn't the whole point of a good college education to learn how to think for yourself and not just drink all the kool aid you are served?

 

Not if you want tenure! ;D  I think Munger likes to quote Max Planck: "Science (academia) advances one funeral at a time."

 

In theory, though, you're right and in all likelihood, many of the most ingenious and truly groundbreaking types probably do learn this by going to college -- though I'm not convinced most of the same people learn this in the courses themselves.

 

Buffett likes to say that: "The key to life is being the batboy for the right hitter."  A corollary being that they key to life involves figuring out who the right hitters are.

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