Friday, July 24, 2009

Buffett’s Goldman Stake Pays Richly - DealBook Blog -

Buffett’s Goldman Stake Pays Richly - DealBook Blog -
"Mr. Buffett’s stake in Goldman is now worth $9.1 billion, or about $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 Mr. Wilson’s calculations, Mr. Buffett would realize an annualized return of about 111 percent if he sold his Goldman stake, which is held by his conglomerate Berkshire Hathaway.

In comparison, the federal government received a 23 percent annualized return for its Goldman investment, the bank said after it agreed on Wednesday to pay $1.1 billion to settle warrants the Treasury Department received after injecting $10 billion into the bank in November."

And added bonus in this article is it briefly discusses how to value warrants (price the option but realize you must adjust dilution).
"Wilson...ascribed a $5.5 billion valuation to Mr. Buffett’s preferred shares and $3.2 billion to the warrants.... The valuation of the warrants was based on Goldman’s closing share price of $160.46 on Wednesday and the 10-year historic volatility of the shares. (For financial wonks, Mr. Wilson used the Black-Scholes and Merton option pricing models with the dilution adjustments of Galai and Schneller.)

BTW I am currently ristening to Snowball and definitely recommend it. I have been amazed at how similar the Goldman deal was to his Salomon deal back in the early 1990s. The book is well done financially (talks about Junk Bonds days, takeovers, spin-offs, etc) and I have learned a great deal about Buffett.

It also has good "class examples" and trivia. For instance, did you know that Warren owned a farm while in High School? Or that when growing up he considered the cost of an item not how much it cost now, but what he would be giving up in the future after the money grew--I mention that since I used to do that too. Alas the similarities stop before getting to my wallet. lol.

Total Disclosure: BonaSIMM (to which I am the faculty leader) has a stake in Goldman. It is however, a bit smaller than Mr. Buffett's.


Mark L. said...

Who was the one who recommended goldman to SIMM? I forget, but I remember he took a lot of heat for awhile, much like Buffet (around the time GS was at $47)..Interesting to look at the similarities between Buffet and this SIMM member haha

jim said...

Yeah, but just think what the return would have been then ;) I mean Buffett might have had enough to retire on lol...