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I read a provocative headline the other day: "Warren Buffett Bludgeoned."
Hmm ... OK. It was referring to the recent purchases by the Berkshire Hathaway (NYSE: BRK-A ) (NYSE: BRK-B ) chairman of shares of General Electric (NYSE: GE ) and Goldman Sachs (NYSE: GS ) , to the tune of several billion dollars' worth each.
The article pointed out that both stocks have dropped considerably recently. Well, yeah, that's true. Buffett's planned purchase of GE was announced on Oct. 1. The stock closed at $24.50 that day. The stock did indeed sink after that, closing at $19 on Oct. 9. But on the 10th, the day I read that headline, it rose 13%, to $21.50. Meanwhile, Goldman shares closed around $125 per share on the day Buffett's investment was announced. As of yesterday, they were at $111, down over 10%. Ouch!
But let's remember a few things, shall we? For starters, although we'll hear now and then that Buffett has invested in this company or that -- Berkshire owns shares of Procter & Gamble (NYSE: PG ) , Wells Fargo (NYSE: WFC ) , and Coca-Cola (NYSE: KO ) , among many others -- we rarely hear the exact prices or dates on which he made his purchases. He's likely to buy over a period of a few days, if not a few weeks, because he's dealing with such high numbers. If someone tried to buy $500 million or $1 billion worth of stock in a company in a single day, it would get noticed and it would drive up the price.
More importantly, Buffett wasn't buying ordinary common stock. He negotiated a better deal -- shares of preferred stock that pay solid 10% dividends.
And finally: You can't fault him for missing the perfect price. How can he, or anyone, know that a $125 stock will trade below $100 for a little while soon thereafter? We can't. That involves a short-term guess, and nothing more. What Buffett does do, and does well, is gauge the intrinsic value of a company, and invest in it at prices well below that. There's no need to call him bludgeoned -- what matters is his performance over the long haul, over the lives of these investments, which may be many years.