One of my heroes, Warren Buffett, elicited some surprising criticism recently from old pal, former journalist turned investment advisor Magnus Heystek. In a well read piece on the website I started above my garage back in 1997 (yes, it still hurts...) Magnus told the Moneyweb Community he’d rather listen to a group of local fund managers at Sun City than join our annual pilgrimage to Omaha. To each their own. But after today’s news about another major coup for Buffett, Big Mag might reconsider.
For me, nobody in the investment field locally comes remotely close to the Oracle. Forget for a moment the $53.5bn net worth that Buffett has accumulated through his investment prowess. Or the fact that his common-sense approach to buying and selling shares is now aped by tens of thousands around the world. This morning’s news emphasised that he’s also in a class of his own in an ability to strike a good deal. To keep his head when all around are losing their.
Back in October 2008, Wall Street was in a funk. The collapse of Lehman Brothers on 15 September sparked a run on every other investment bank, with the most prestigious of the lot, Goldman Sachs, among those staring down a barrel.
Cool heads were scarce. Hank Paulsen at the US Treasury was among them, lending GS a hand in return for a 10 year option on 12.2m shares at $122.90 (when the loan was repaid a year later, US taxpayers enjoyed a $1.1bn profit on that decision). Paulsen’s grit helped. But it took Buffett’s public show of confidence in Goldman through a $5bn emergency loan to properly steady the ship. Much as the Buffett of the 1920s, JP Morgan, had done after that other big Wall Street Crash.
Almost five years later, the brilliance of Buffett’s deal has now become public.
His $5bn emergency loan carried an interest rate of 10% and came with a five year option to buy another 9% of Goldman’s equity (43.5m shares) at $115 per share. The Goldman Sachs 2011 annual report tells us the bank repaid Berkshire’s $5bn loan at a premium of $1.64bn. Yesterday’s deal, involving the option side of the transaction, netted a further R1.37bn profit for the Oracle.
So Buffett’s gutsy $5bn bet four and a half years ago generated a touch over $4bn in profit. That’s R37bn at the current exchange rate. Enough to buy an entire conference of asset managers – and a few Sun Cities too.
After missing the Berkshire AGM last year, I’ll once again be joining Kokkie Kooyman, David Shapiro and the gang on the first weekend of May. Along with about 40 000 others who also believe it’s a great investment traveling to a remote city in Nebraska to witness five hours of advice from Buffett and his sidekick Charlie Munger.
