
Buffett makes $3.7B profit from $5B investment in Goldman Sachs - known
http://www.bloomberg.com/news/2011-03-18/buffett-generates-3-7-billion-from-goldman-investment-made-during-crisis.html
======
patio11
I loved reading about that deal. Buffett handled it with aplomb and secured
terms which warmed me to the cockles of my blackened capitalist heart. (It was
very close to being a five billion dollar juice loan, because Buffett was
standing on a large stack of actual money when the private equity markets were
in barely restrained terror, and the BATNA to taking his money was probably
bankruptcy or nationalization.)

Edit to add: The "juice loan" remark is in reference to the guaranteed 10%
yield _in perpetuity_ on those shares, which isn't actually a mafia interest
rate but is such a worse deal than large megacorps usually pay for capital
that it it had been done to a natural person I would hope a court would rule
it unconscionable. At the level of megacorps though, shucks, you pays your
money and you takes your chances.

~~~
tezza
At the time for example the UK government was taking lots of 12% preferred
bonds/shares in the UK banks. So GS probably saw ready money and ~ 2% better
terms from Buffet than other sufficiently large lenders.

[http://www.thisismoney.co.uk/30-second-
guides/article.html?i...](http://www.thisismoney.co.uk/30-second-
guides/article.html?in_article_id=455609&in_page_id=53611)

Barclays also took lots of foreign investment, which I think they too have
repaid.

~~~
Tyrannosaurs
Barclays took a lot of money from Saudi. If memory serves the terms were in
many ways worse than the UK government were offering but they were keen
(potentially rightly so in hindsight) to avoid the political / PR
entanglements of being in debt to a government which was under pressure from a
banker hating electorate.

------
lionhearted
I've read two books recently that shed light on Buffet's investment strategy -
"Seeking Wisdom," which quotes a lot of the principles Buffet and his partner
Munger use, and "The Intelligent Investor" which deals primarily with
assessing fundamental investment values and making intelligent investments
instead of knee-jerk reactions to booms and busts. Buffet has said "The
Intelligent Investor" is his pick for best book ever written on investing.

They're both quite good. Seeking Wisdom is more about mental models and
getting better heuristics for quick decisionmaking and assessment of
complicated things. Derek Sivers's notes on it are good:

<http://sivers.org/book/SeekingWisdom>

I don't know a great summary of Intelligent Investor to link to, but it's
definitely recommended - it's a finance book so not beach reading, but it's
light and casual enough and not too academic. It's as about as readable as you
can get for a serious book on finance.

~~~
Jayasimhan
I'm reading Seeking Wisdom now, and loving it.. I'm so blown by the fact that
awesome stuff like these are often hidden deep in the web and not so obvious
even for a regular reader.

~~~
achompas
I'd love to get a copy, but Amazon is seemingly out of stock (only new copies
at $30). Where did you get your copy?

EDIT: answered my own question, here's the publisher's order form:
<https://www.poorcharliesalmanack.com/orderform_v4.php>

------
petercooper
I think it's easy to forget what the atmosphere was like when Buffett made the
deal. Even the saner news outlets were entertaining some of the the financial
armageddon scenarios.. and on HN, Buffett's attitude was mostly met with
cynicism or disbelief: <http://news.ycombinator.com/item?id=335452>

As always, life and business went on and the brave made a profit. Unlike me
who didn't invest during the last dip. D'oh.

~~~
roel_v
"As always, life and business went on and the brave made a profit."

I agree with you, but we mustn't forget that this is partly survivor bias,
too... Much money was lost on bets that turned out wrong. I remember being
glued to the news for hours in autumn 2008, and doing the maths over lunch
with my colleagues on how much I would've made on a local bank's stocks had I
actually bought the evening before, like I said I was going to (didn't have
the balls in the end :) ). Either way that was on a Friday, and on Monday they
were nationalized and many people lost their life's savings... I would've been
really screwed had I gone through with it.

~~~
artmageddon
Too true. I remember AMD being at $1.80 at the bottom of the trough, and
thinking to myself "What a bargain!" Of course, that was the day that Lehman
had collapsed and who knew what else was going to go down with it, so I held
off. It went up to over $10 at one point since, and today it's around $8.50.
Would've made a killing off it :-/

Still, hindsight is 20/20... and for every winner there are scores of others
who were severely burned by taking the risk. I don't regret not going for it
much.

------
akjj
This was more than just Buffet's good timing in making an investment. He was
also renting out his reputation. Goldman Sachs's future was in question, so
the vote of confidence from Warren Buffett, the so-called Oracle of Omaha, was
very valuable for them. Thus, the deal was structured to be very lucrative for
Buffett. No comparable investment opportunity was available to the public at
the time.

Warren Buffett is very good at what he does, but he also has opportunities
which just aren't available to the general public.

~~~
xiaoma
He has also long argued that investors with much money have far more
attractive investing opportunities. If you're controlling tens or hundreds of
billions, small caps don't even move the needle on your portfolio if you buy
the whole company! At Berkshire's size high growth investments are very hard
to come by. The almost have to be something exceptional like this.

~~~
candeira
Well, you can invest in Berkshire Hathaway stock and be sure that, unlike the
evil idiots at Goldman Sacks, Buffet will be managing your money in your long
term benefit, and putting it in those far more attractive investing
opportunities in your behalf.

~~~
prodigal_erik
Last I heard, BRK.A trades at a pretty hefty premium above the market value of
its assets (not something you normally want to see in a holding company), and
nobody knows whether a protégé of Buffet will be able to come anywhere near
his celebrated performance.

~~~
Swannie
Buffet himself does not believe that will happen. If you read the 2010 letter
to shareholders, he states that going forward he does not expect growth in the
order they have in the past.

That he and Charlies biggest challenge is to maintain a solid baseline of
market matching, and occasionally beating, performance. They can't really go
for the big wins any more - due to their market cap, a big win would have to
be astronomical to give them growth like they had in the 80s.

------
carsongross
Your tax dollars at work, kids:

    
    
      http://goo.gl/DDw8e
    

Don't let Uncle Warren, or the finance kids around here, tell you different.

Jus' a simple capitalist from Omaha, 'spectin the govt. to make me whole, is
all.

 _barf_

~~~
benmccann
There's no reason to use a URL shortener. Please don't since it makes it
impossible to tell what you are linking to. Also, I don't see how that article
in anyway suggests that Buffett's support of a bailout was due to his
financial interests as you imply.

~~~
eru
> Please don't since it makes it impossible to tell what you are linking to.

I just assume shortened URLs lead to being Rick-rolled or worse.

------
citizenkeys
Goldman Sachs is buying back their stock from Buffet. Buffet calls the
redemption by Goldman Sachs as "unwelcome". And rightfully so. Buffet bought
the stock in 2008 while it was incredibly undervalued.. Goldman Sachs is
buying it back from Buffet before the stock price gets too high to ever get it
back.

~~~
bvi
Theoretically speaking, would Berkshire Hathaway be able to prevent selling
back to Goldman Sachs? Or would there most likely have been a clause that
would have forced them to sell to GS whenever they wanted to buy back?

~~~
JoachimSchipper
I'm almost certain that GS can buy the shares back no matter what. For one,
the deal would have been _too_ painful otherwise; additionally, Berkshire
clearly doesn't _want_ to sell.

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marcamillion
Can Buffet now either redeem the warrants at $115 and sell them back to
Goldman in this transaction or is that a completely different transaction
altogether ?

I guess they don't call him the Oracle of Omaha for no reason.

Kudos Mr. Buffet.

You licensed the rights of your name for a cool $3.7B for 2 years. I would
love to know if that is the most lucrative licensing contract to date.

------
MarkMc
People are missing half the story here. Buffett made such a killing because he
was the only person with cash in the bank. For years and years before the
crisis, while everyone was leveraged to their eyeballs and making tidy
profits, Buffett was complaining how his cash was piling up because businesses
were overvalued.

So although he made a 75% gain over the last 2.5 years, that was only because
he made around a 20% gain in the previous 5.5 years. Still, doubling money in
9 years is far better than the Dow Jones.

------
jmspring
Of all the investment bigwigs, Buffet -- the Oracle of Omaha -- has been the
man to follow. Not only making good on investments, but he generally seems to
care (where needed) about what he is investing in.

------
ww520
There's an investment saying, "buy when bloods are running on the street."
Buffett certainly lived it to the fullest. Sigh.

------
georgieporgie
I've been listening to The Snowball, a biography of Warren Buffett.
Fascinating guy.

[http://www.amazon.com/Snowball-Warren-Buffett-Business-
Life/...](http://www.amazon.com/Snowball-Warren-Buffett-Business-
Life/dp/0553384619/)

