Buffett proves investment skill again

Buffett proves investment skill again
Business Times - 25 Jul 2009

WARREN Buffett showed again why he is known as one of the world's best investors, thanks in part to another prominent investor, Goldman Sachs.

Mr Buffett's stake in Goldman is now worth US$9.1 billion, or about US$4.1 billion more than what he paid 10 months ago, according to an analysis by Linus Wilson, an assistant professor of finance at the University of Louisiana at Lafayette.

According to Prof Wilson's calculations, Mr Buffett would realise an annualised return of 111 per cent, if he sold his Goldman stake, which is held by his conglomerate Berkshire Hathaway.

In comparison, the federal government received a 23 per cent annualised return for its Goldman investment.

Goldman turned to Mr Buffett last September, seeking a cash injection. In return, Mr Buffett negotiated what was considered even then to be very favourable terms.

Berkshire Hathaway received perpetual preferred shares in Goldman, which pay a 10 per cent annual dividend, or US$500 million a year.

Berkshire Hathaway also received warrants to buy US$5 billion in common stock at a strike price of US$115 a share, which could be used at any time within five years of the initial investment.

Prof Wilson ascribed a US$5.5 billion valuation to Mr Buffett's preferred shares and US$3.2 billion to the warrants. He also calculated that Berkshire's reinvested dividends from the Goldman stake are worth about US$400 million.

The analysis was based on Goldman's closing share price of US$160.46 on Wednesday. -- NYT