Warren Buffett really is the master guru of the investment world; he sure knows how to make money and often does it via the use of stock warrants on companies he decides to invest in.
Buffett is an opportunist. He is a predator who seeks out companies that he feels can be turned around and saved. He rarely loses money, and more often than not, he makes tons of it.
When the banking sector was extremely fragile, Buffett spotted a great opportunity; he probably realized the Obama administration would not allow any of the major big banks to go under following the financial collapse of Lehman Brothers in 2008, which triggered the recession and massive global turmoil that followed. (Read “Why I Like These Two Banks Right Now.”)
Buffett invested $5.7 billion in ailing Bank of America Corporation (NYSE/BAC) in exchange for preferred shares that paid his Berkshire Hathaway Inc. (NYSE/BRK) fund around $300 million annually. The deal also gave Buffett’s holding company warrants to buy $5.0 billion of Bank of America at $7.14 per share.
Chart courtesy of www.StockCharts.com
With Bank of America around $14.37, Buffett has made about $5.06 billion in paper profits if he exercises. I suspect he will wait, as the warrants still have several years left for expiry and Bank of America will likely move much higher. He makes around $700.28 million for each one dollar rise in Bank of America stock.
To all those who thought the investment master guru wouldn’t fare well during the new realm of investing because of his disinterest in technology stocks or sectors he didn’t understand, all I can say is this: he continues to be the master investor that everyone else tries to emulate.
Buffett only buys companies that he understands. The business must be able to produce strong cash flow and have excellent market coverage, or he’s not going to give it a second glance.
Businesses that Buffett owns include insurance, banking, energy and power, transport, consumer goods, manufacturing, retail, and building and construction companies.
Stocks that he holds include American Express Company (NYSE/AXP), The Coca-Cola Company (NYSE/KO), ConocoPhillips (NYSE/COP), Johnson & Johnson (NYSE/JNJ), Kraft Foods Group, Inc. (NASDAQ/KRFT), The Procter & Gamble Company (NYSE/PG), Sanofi (NYSE/SNY), Tesco Corporation (NASDAQ/TESO), U.S. Bancorp (NYSE/USB), Wal-Mart Stores, Inc. (NYSE/WMT), and Wells Fargo & Company (NYSE/WFC).
Buffett is simply a human ATM machine.
I kind of wish he ran the Federal Reserve; I wonder how things would’ve turned out then.