Warren Buffet is Still a Genius
67Warren Buffet has long been known as the “Oracle of Omaha” for his ability to invest in the stock market. Many would argue that he is the greatest stock market investor in history. He was criticized for being out of touch during the bull run in technology stocks, but his wisdom was evident following the bust. The stock market rebounded on the back of borrowed money leading to the financial collapse.
In the midst of that collapse one year ago, Warren Buffet served as a one man bailout program for Goldman Sachs and General Electric. On September 28, 2008, it was announced that Warren Buffet’s Berkshire Hathaway would invest $5 billion in Goldman Sachs in exchange for preferred shares that would pay a dividend of 10%. When Goldman wants to buy back those shares, they are required to pay a premium of 10% or another $500 million. He also received warrants to purchase $5 billion worth of common stock at a price of $115 per share. Now those warrants are worth $7.68 billion on paper. Plus he received $500 million in dividends over the past year.
His investment in General Electric had a similar structure and was announced on October 1, 2008. He invested $3 billion this time. The preferred shares again carried a dividend of 10% and could be repurchased for a 10% premium. The additional $3 billion common stock warrants were for a price of $22.25 per share and were good for five years. GE stock closed today at 16 so the warrants are currently worthless.
Following these two notable investments, Warren wrote an op-ed piece for the New York Times entitled, “Buy American. I Am.” This piece appeared on October 16, 2008 in the midst of the fear of the financial crisis. Obviously, Warren Buffet has made a career of being greedy when others are fearful and vice versa. As we near the one year anniversary of these investments, we find the annual return to be 26.7%. Clearly, Warren still has it!
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Thoughts on Warren BuffetLoading...
“Buy American. I Am.”
That's interesting because he invested BYD. Buffet is a very bright investor... but he is also disingenuous. He always does what suits his own self interest. In my opinion it's sad to have a role model who is so self centered... regardless of brilliance.
Buffet is an opportunist... chasing the dollar and if those dollars are outside the USA he could care less.
Warren Buffett is famous for his rules of investing: When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is usually the reputation of the business that remains intact.
You should invest in a business that even a fool can run, because someday a fool will. And perhaps most famously, Never invest in a business you cannot understand.
So when Buffett's friend and longtime partner in Berkshire Hathaway
, Charlie Munger, suggested early last year that they invest in BYD, an obscure Chinese battery, mobile phone, and electric car
company, one might have predicted Buffett would cite rule No. 3 above. He is, after all, a man who shunned the booming U.S. tech industry during the 1990s.
But Buffett, who is 78, was intrigued by Munger's description of the entrepreneur behind BYD, a man named Wang Chuan-Fu, whom he had met through a mutual friend. "This guy," Munger tells Fortune, "is a combination of Thomas Edison and Jack Welch - something like Edison in solving technical problems, and something like Welch in getting done what he needs to do. I have never seen anything like it."
Again, you can't argue his genius. I don't know if Buffet was being disingenuous, since I can't really assess his frame of mind. I do see your point fully. One always has to wonder about the motives of the rich and powerful.
Nonetheless, he did invest in GS and GE. Nor can I argue that electric vehicles might very well be the future. Buffet may or may not understand BYD, but maybe he is letting others begin to make some of the investment decisions in a sign of succession.
I like his two rules for success:
1. Don't lose money
2. Refer to rule #1
I have a web site where I research stocks under five dollars. I have many years of experience with these type of stocks. I would like to comment about warren buffett. I do not believe warren buffet is the value investor that he was years ago. if he was he most certainly would have caught the spectacular come back of ford motor the shares of ford motor were trading at only 1 dollar a share two years ago today they trade at 16 dollars a share and the company is well on its way to becoming the number one world automobile company. another example is apple computer the shares were trading at just 5 dollars in 1998 today they trade at 340 dollars a share he totally missed this one also. their are dozens of other examples. even warren buffet has stated that the types of stocks that berkshire hathaway invests in today will not deliver the same returns that it has delivered in the past. I have even heard him say don't buy berkshire hathaway by the way he is not the oracle of omaha
Ralph Deeds Level 6 Commenter 2 years ago
I'm a longtime Warren Buffett fan and only wish I'd bought some Berhshire Hathaway when I first heard of him 40 years ago. Buffett has made a lot of money by not following the theory that the market price of the moment is correct (Fama's theory).
BTW, Buffett recommends no load, low cost, tax efficient index mutual funds like the ones offered by Vanguard for ordinary folks.