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TheDumbMoney (43.71)

Berkshire's Warrants on Bank of America

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March 16, 2012 – Comments (2) | RELATED TICKERS: BAC , BRK-B

So for anyone keeping score, Buffett's/Berkshire's warrants on BofA are worth a shade under $2 billion (pure profit), as of what BofA is trading at, at this moment. 

....and Berkshire has another 9&1/2 years in which to excercise them.

Ouch.

DTAF

2 Comments – Post Your Own

#1) On March 16, 2012 at 11:25 PM, Valyooo (99.41) wrote:

Is it me, or do people foolishly love to strike deals with Buffett?  They feel as though it is so prestigious to do a deal with him...but if you do a deal with him, possibly the best investor of all time, you are the one getting the short straw.

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#2) On March 16, 2012 at 11:36 PM, TheDumbMoney (43.71) wrote:

I think BofA really needed his credibility last Fall.  Things could have gone the other way.  And the stress test indicates BofA needed the capital.  So if you assume they needed to dilute anyway, then it made sense to dilute with Warren, whilst giving yourself the imprimateur of having him invest in you.  In other words, Warren didn't screw Moynihan and BofA, they collectively screwed prior common stock investors.  Though, if you think the bank might otherwise have imploded (as many seriously did, let me find you the links on this site alone from August - September 2011 if you don't believe me), then it was a win-win: it was a classic pareto efficient outcome.

The broader thing people don't get about Buffett is something I think you highlight.  The greatest trick the devil ever pulled was convincing the world he didn't exist.  And one of the greatest tricks Buffett has ever pulled is to turn size into an advantage.  While he himself, along with everyone else, talks about the law of large numbers, he has spent the last four years producing the possibility of outsized long-term returns precisely because of the enormous amounts of capital he keeps in his so-called elephant gun.  That's not to say he isn't subject to the law of large numbers; the BNSF purchase proves that a bit.  But it has been an interesting show to watch.

Also, separately, yes it's well known that many family companies have sold to him for below what they would have sold out to a private equity groupe, etc.  That's because these very smart and entrepreneurial people like what he is selling: a way to cash out their chips while they retain virtually complete control over their businesses.

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