Wednesday, 31 December 2008

Buffett's Investment in Goldman Sach

Some interesting thoughts.

Examples: The similarities between Salomon and GS--Warren never will, and will never need to, take on a role at GS that is similar to the one he did at Salomon. The only way Buffett will lose with the GS deal is if the company goes under--not impossible, but extremely unlikely. In the meantime he is collecting 10% interest, is assured return of capital (except if GS goes under), an is assured a 10% fee if the debt is repaid early. The warrants, if he gets to exercise it for a profit, is icing on the cake.

Another example: his 1999 call of a sideways market until 2016 was brilliant indeed. But remember the SP500 was in the 1300 to 1400 range then. In Nov 2008, with the SP500 around 750, the 1999 call if proven right, means a 1350 or so SP 500 in 2016--or an approximately 80% gain in 8 years. This is a annualized return of about 7 or 8%, plus a dividend of over 3% --for a cumulative return of around 10% for the next 8 years. Perhaps Mr. Cooper considers this inadequate. REMEMBER: Graham defined Investment as "an operation which, upon thorough analysis promises safety of capital and an adequate return"

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