Here’s why you shouldn’t follow Warren Buffett.
Warren Buffett is considered as the name of success in investment industry. He is an emblem of experience in the field of investment. His investment in any business is considered as a precursor of long-term success. He is the CEO and chairman of a holding company named as Berkshire Hathaway. Berkshire Hathaway is considered as one of the most reliable firm in the field of investment. Since its beginning, it has handled countless projects successfully.
In the previous month, Berkshire Hathaway made another financial expedition. It invested five billion US dollars in the Bank of America. As a result of such a mammoth investment, the stock market showed some unusual trends and suddenly started rising. This trend was named as Buffett bounce.
While investing money, Buffett takes a considerable amount of risk e.g. he prefers to buy to preferred shares over ordinary shares. His risky approach is considered as a trademark of his own and should never be followed blindly. For all times, Buffett’s approach may not necessarily work for you and can lead you to financial catastrophe.
In 2008, Buffett invested three billion US dollars for the rescue of General Electric, with the condition that General Electric will pay a handsome amount of monthly dividend, besides the original money. In the end, Mr. Buffett earned three hundred billion dollars from this investment, in addition to dividend.
The preferred shares purchased by Berkshire yielded a 10 per cent annual gain. In the mean while, the business of common shares was not much prosperous. Berkshire purchased the preferred shares of General Electric shares at $24.5. On the contrary, these days the value of these shares has decreased to $15.4. It means that there is an approximate decrease of 40 per cent in the trade value of preferred shares of General Electric.
Similar to General Electric, Goldman Sachs grabbed the hand of Warren Buffett to get rid of its financial calamity. Mr. Buffett gathered a total of $1.7 billion, with an annual dividend of 10%. When Mr. Buffett made the investment, the price of a share was $125 and now it has decreased to $104. In both these scenarios, Berkshire Hathaway has the rights to easily purchase the common shares of each company but it can’t use these rights until 2013.
The incumbent deal of Mr. Buffett seems to be very much similar to General Electric and Goldman Sachs. Mr. Buffett has agreed to an annual dividend of 6%. It is most likely expected that Berkshire will make huge amount of money from the stock market. This is for the reason that it has the warrants to purchase 700 million shares of this bank at $7.14, while the present day price per share is $7.0.