It's ironic that it took a short-term gain for some to reassess long-term-focused investing guru Warren Buffett.
On Friday, The Wall Street Journal's Deal Journal blog posted this headline: "Buffett Regains His Cred With Goldman Surge." The headline refers, of course, to Berkshire Hathaway's
The deal gave Berkshire $5 billion worth of preferred stock in Goldman that paid a whopping 10% annual dividend along with warrants to buy $5 billion in Goldman stock at $115 per share. With Goldman's share price over $160 today, those warrants are now worth more than $2 billion, and the preferred stock is still paying that sweet $500 million dividend.
How Buffett got his groove back
The investment in Goldman had some people suggesting that Buffett had lost his touch when the shares fell below $50 in November, while a similar investment in General Electric
The Deal Journal's headline, however, referred to a New York Post article about how successful Buffett's bet on Goldman has been. Still, I couldn't help but chuckle at the idea that Buffett had lost his credibility -- or his groove for that matter -- in the first place.
Not that I should be surprised. Most market commentators and many investing "experts" are so focused on the near term that they're ready to draw conclusions from every single frenetic spasm of the market.
But the idea of investing with an eye toward next month -- or even next year -- has rarely (if ever) been Buffett's modus operandi. Going against the grain has bagged him huge returns on investments like American Express
And though his heavy exposure to financial stocks like Wells Fargo
The lesson is clear
None of us really benefits from sitting around talking about how talented Warren Buffett is when it comes to investing. Luckily, we can benefit from learning how he has been so successful.
In the case of Goldman, Buffett did what he's always advocated -- investing in well-run companies with great brands and moats around their businesses, when they're selling at discounted prices, and then sitting on your hands and waiting for the market to come to its senses. Being able to buy preferred shares that common investors couldn't certainly helped, but the core of the investment fit what he's long preached.
Despite the run-up since March, today's market is offering a good number of these Buffett-esque opportunities. In fact, Berkshire itself -- which is trading under its typical 1.5-to-2 times book value -- may be one of them.
However, as smaller individual investors, we can also take advantage of the deals on many smaller stocks that would be of little interest to Buffett because of Berkshire's size. As my Foolish colleagues have pointed out in the past, these smaller companies are often the best opportunities to capture outsized gains. Options broker optionsXpress and refiner Holly Corp. are two of my favorite small caps, but with the market still so beaten up there are plenty of other opportunities that I've had my eyes on.
What stocks do you think would make the best Buffett-type buys right now? Share your thoughts in the comment section below or click over to the Motley Fool's CAPS community and share your picks with 135,000 other investors.
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Berkshire Hathaway and optionsXpress Holdings are Motley Fool Stock Advisor picks. American Express and Berkshire Hathaway are Motley Fool Inside Value recommendations. The Fool owns shares of American Express and Berkshire Hathaway. Try any of our Foolish newsletters today, free for 30 days.
Fool contributor Matt Koppenheffer owns shares of Berkshire Hathaway, optionsXpress, Holly Corp., and American Express, but does not own shares of any of the other companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool. The Fool’s disclosure policy thinks mauve is the new black.