This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Why Warren Buffett's Goldman Sachs Stake May Mirror IBM

Still, like IBM, Goldman Sachs is likely relying on a multi-year share buyback program to help the firm transition to a new regulatory era that promotes higher capital, less leverage and makes risk taking more burdensome.

Goldman Sachs quietly has been among the biggest net share repurchasers in the entire financial sector.

Since the third quarter of 2010, Goldman has plowed over $10 billion into share repurchases, cutting its overall share count by about 15%. The firm escaped the financial crisis with a diluted share count nearing 600 million shares. After $1.65 billion in third quarter share buybacks, that count has fallen to below 500 million shares for the first time since the crisis.

For now, Goldman's share repurchase activity is helping to boost the firm's earnings per share metrics in a flat economy. While revenue for the third quarter and for 2013 has fallen from 2012 levels, the firm's earnings continue to grow. There is reason to expect Goldman will earn over $15 in earnings per share this year, a new record for the firm.

Those earnings per share records may help to mask Goldman's falling revenue and a decidedly weak outlook for year-end, however, they also augur well for the firm in a better economy.

"Goldman Sachs is not drawing its capital down, but what it is doing is using the capital it generates to retire shares until such time that the world's economy has grown to the point where GS can earn a 15-20% return on equity on the ~66B of capital that it has," Chris Kotowski, an Oppenheimer analyst, wrote ahead of the firm's earnings results.

"We have no idea when that point will come, but when it does there will be fewer shares around to share the wealth," he concluded.

Like IBM, Buffett has committed to being a long-term holder of Goldman shares after he converted 43 million stock warrants to an over $2 billion stake in the firm. As with IBM, Buffett stands poised to benefit from Goldman's industry leading share buyback program if his confidence in the firm's management proves to be correct.

"In my early days I, too, rejoiced when the market rose. Then I read Chapter Eight of Ben Graham's The Intelligent Investor, the chapter dealing with how investors should view fluctuations in stock prices," wrote Buffett in the 2011 shareholder letter.

"Immediately the scales fell from my eyes, and low prices became my friend. Picking up that book was one of the luckiest moments in my life."

Goldman Sachs shares were falling over 3% to $157.29 in early Thursday trading.

-- Written by Antoine Gara in New York.

Must Read: Republican Budget Brinkmanship Leads to Inverted Treasury Yield Curve

2 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
BRK.B $144.83 -1.40%
GS $163.14 -1.83%
IBM $144.13 -0.78%
AAPL $95.18 1.64%
FB $117.43 -0.96%


Chart of I:DJI
DOW 17,750.91 -140.25 -0.78%
S&P 500 2,063.37 -18.06 -0.87%
NASDAQ 4,763.2240 -54.37 -1.13%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs