Warren Buffett has once again proven the naysayers wrong.
Some thought he was crazy to, essentially, bail out Goldman to the tune of $5 billion exactly one year ago.
Yet today the $5 billion in preferred shares he received looks safe and sound, while earning enviable 10% dividends.
Still, the real beauty of the deal was that he also received the option to buy $5 billion of Goldman stock for $115 per share at any time over the next five years, via warrants.
That’s the part where, today, he’s just laughing. With Goldman at $186, these warrants are worth about $3.1 billion already. Not bad for a $5 billion dollar investment. Before considering any dividends, that equates to a 62% one-year return.
Even when Goldman shares broke below $48 last year, and criticism of his skills intensified, Mr. Buffett was still sitting pretty since the shares would have had to hit zero before his preferred stock’s principal was even remotely threatened.
CNBC: So far, Buffett show no interest in doing that, [exercising his warrants] on the expectation Goldman’s stock is still going higher.
In July, as Berkshire’s stock rallied to a six-month closing high, he told Fox Business News, “Every instinct in my body tells me that we will want to hold those warrants until they’re very close to their expiration date. The preferred pays us the dividend and the warrants are going to make us the money.”