Berkshire Hathaway Up $2.5 Billion+ on Goldman Sachs Investment

Remember when everyone was laughing at Warren Buffett's five billion dollar investment in Goldman Sachs?

Remember, just a few short months ago, when people were openly questioning whether Warren Buffett still had it?

Well, Warren Buffett has (once again) proven the naysayers wrong.

His sweetheart deal with Goldman Sachs (hey, any time you can get a better deal than the US government, you've surely scored a "sweetheart" deal) is paying immense dividends for Buffett and Berkshire Hathaway.

Back in September of 2008, Warren Buffett announced that he would be investing "at least" $5 billion dollars in Goldman Sachs.

The deal called for Berkshire to buy $5 billion dollars in preferred Goldman stock with a dividend of 10%. In addition, Berkshire received warrants to buy another $5 billion dollars of Goldman common shares at $115 per share through October, 2013.

Goldman has the option to buy back the preferred shares at "any time", for a 10% premium of course.

The preferred shares were a great deal by themselves - however, the warrants, as Warren Buffett has frequently stated, were a "bonus".

Those warrants, which were a "bonus", are now worth in excess of $2 billion dollars.

When the deal was originally announced, Goldman Sachs was trading at around $125.05 per share. This was in late September.

The next few months (as you surely know) were disastrous for the markets in general - however, the financial sector was rocked especially hard.

Goldman Sachs dropped below $50 per share, and people started to openly wonder if Warren Buffett had finally lost his "Midas Touch".

Buffett wasn't panicking - after all, his company was still receiving a 10% dividend from the preferred shares, and there was plenty of time for Goldman Sachs to make a comeback.

And make a comeback they did.

Less than a year later, Goldman Sachs has more than tripled in price, and Warren Buffett is looking like a genius once again.

Sure Buffett received a better deal than the United States government.

Sure Goldman Sachs was the direct beneficiary of the bailout of AIG.

These facts are indisputable.

However, Warren Buffett was receiving a tremendous amount of criticism (and derision) in the months following this deal, and it needs to be mentioned that he was ultimately proven right (so far, at least).

People will say that the game is rigged. People will say that Buffett had access to a deal that nobody else on the planet could have obtained. I'm not arguing with any of this.

However, people weren't saying this 9-10 months ago. They were counting Buffett out. They were saying that he had lost it.

Clearly Warren Buffett still knows how to land a great deal for his shareholders, as proven by his lucrative investment in Goldman Sachs.

Source: New York Post - Buffett's Goldman Gamble Wins

Filed under: General Market News