Fool Video: Buffett Buys. Should You?

Warren Buffett says that Berkshire Hathaway (NYSE: BRK-A  ) (NYSE: BRK-B  ) will invest at least $5 billion in Goldman Sachs (NYSE: GS  ) . What does Buffett's latest move mean for investors? In this installment of "Fool Video," online managing editor LouAnn DiCosmo talks stocks with senior analyst Tim Hanson. Stocks discussed include Berkshire-Hathaway, Goldman Sachs, Luxottica (NYSE: LUX  ) , and Melco PBL (Nasdaq: MPEL  ) .

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Berkshire is a Motley Fool Inside Value pick and a Stock Advisor pick. Melco is a Global Gains selection. Try any of our Foolish newsletters today, free for 30 days, to see how we are making the most of today's market opportunities. 

Both Lou and Tim own shares of Berkshire. Tim owns shares of Melco. Mac doesn’t own any of the stocks discussed. The Fool owns shares of Berkshire Hathaway and has a disclosure policy.


Read/Post Comments (3) | Recommend This Article (11)

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  • Report this Comment On September 24, 2008, at 6:52 PM, danlucetti wrote:

    Hey guys, nice discussion about Goldman; but Buffett is just securing his 10% yield on $5 billion. There is nothing for the common stock holders in this deal. WB will just hedge his position by shorting the stock to lock his 10% yield as follows: I think he must be using the warrants as a hedge to short the common stock (via puts today or straight short selling once the ban is lifted) and protect his capital.

    That is, WB is getting $500 million per year for the next "n" years he holds the preferred stock. Goldman can use the $5 billion however they see fit now (they can burn it even by buying toxic assets if they want). But WB will protect his $5 billion principal by shorting the common stock --at today's prices of $130 this would represent going short 39 million shares (so he gets proceeds of $5 billion).

    If GS common stock goes bankrupt then WB doesn't care because he gets to keep the proceeds from his short sale (capital has been protected).

    If GS common stock goes thru the roof and hits $500 then WB can simply exercise his "warrants" and buy the 39 million shares GS common at $115 and deliver the stock that he shorted. (no hit to his principal and he keeps collecting his 10% annual dividend from the Preferred stock.

    Either way he wins because he keeps his $5 billion capital intact and receives a juicy 10% dividend.

    Great Move for Buffett!!! (For going short he can use options or other derivatives until the shorting ban is lifted)

  • Report this Comment On September 27, 2008, at 2:20 AM, srpfool wrote:

    interesting analysis and I would draw one further implication - WB would only get his 10% dividend if GS continues to exist so this has to be a major vote of confidence in GS's balance sheet

    Agree?

  • Report this Comment On September 29, 2008, at 12:41 AM, MFMerlin wrote:

    great commentary/analysis - interesting point Tim made about the rest of us not being able to make the deal WM has made re acquiring GS preferred - individually perhaps we can't get a deal like that but together i.e., as taxpayers who are 'financing' this bailout, why shouldn't we be able to get at least this good a deal or even a better one - i'm not sure even WB has 700B (our/taxpayers money) - that's what we're offering - i think we should get at least 5% ROI which is pretty fair and certainly doable if all those mortgages we're buying were rewritten - just a thought

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