Warren Buffett Bludgeoned (But Now We Know Why He Bought Preferred Stock)

When Warren Buffett bailed out GE and Goldman Sachs a few weeks ago, many commentators thought he had once again called the bottom. A handful, however, noted that Warren had not done what he often does near a bottom: buy common stock. Instead, Warren bought perpetual preferred stock with a 10% coupon.

While common-stock investors continue to get clobbered, moreover, Warren will be collecting his preferred dividend. And if the companies were to be liquidated, Warren would get his share before the common shareholders got a penny.

That said, the market price for Warren’s preferred stock in both Goldman and GE is probably well below what he paid for it. His options in both companies to buy common stock, moreover, are now way out of the money.

Warren bought into Goldman when the stock was at $125 and GE at $22.50. At this writing, Goldman is trading at $81 and GE at $18.

See Also:
Warren Buffett: We Have “Terrible, Terrible, Terrible Problems”

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