Buffett Hits $2 Billion Jackpot With Goldman - TheStreet

Buffett Hits $2 Billion Jackpot With Goldman

Buffett's decision to help Goldman out by buying $5 billion in preferred shares has paid off handsomely.
Publish date:

Warren Buffett just made a quick $2 billion. Who says he's losing his step?

In the midst of the credit crisis, just as Lehman collapsed and Merrill Lynch & Co. was going through a

Bank of America

(JPM) - Get Report

emergency takeover,

Goldman Sachs

(GS) - Get Report

turned to Buffett for help.

The company offered to sell the Oracle of Omaha's

Berkshire Hathaway

(BRK.A) - Get Report

$5 billion in preferred shares with warrants paying 10% interest. Bloomberg now reports that this deal has paid off in billions.

Because of the volatile economic environment at the time, the deal was proposed, Buffett demanded that Goldman add an incentive in the form of warrants that allowed him to purchase GS common stock at $115 per share at any time in the next four years.

Today, Goldman's share price passed $164 in New York trading for the first time since Lehman went bankrupt in September. If Buffett were to redeem the warrants and sell them at this price the difference between today's price and the strike price translates into a hefty $2 billion plus profit for his shareholders.

Berkshire Hathaway, whose first-quarter losses proved that it has not been exempt from the recent economic downturn, benefited from the news. The company's shares gained almost 3% on the NYSE during Thursday and Friday's trading.

Buffett has made a name for himself investing in companies with sustainable competitive advantages. These "wide moat" companies include names such as Goldman Sachs,

American Express

(AXP) - Get Report

, and


(KO) - Get Report


Investors looking for access to these companies but lack the funds necessary to pay the almost $95,000 price tag for Berkshire Hathaway stock may want to take a look at

Elements Morningstar Wide Moat Focus ETN

(WMW) - Get Report

. Interestingly, WMW's positive 23% year-to-date returns have beat Berkshire Hathaway, which is basically flat for 2009.

WMW allows investors to expose themselves to many of the same types of companies as Buffett while sticking to the low cost structure of traditional ETF and ETN funds. Be aware, however, that this fund trades at a low volume which may lead to volatility.

In other Buffett news, the famous investor is taking a stab at a new media frontier. The Oracle is set to star in a new online cartoon aimed at teaching kids financial information. Three- to five- minute episodes of "Secret Millionaire's Club," are expected to begin airing on



by the end of this year or the beginning of next.

At the time of publication, Dion did not own any of the equities and funds mentioned.

Don Dion is the publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.

Dion is also president and founder of Dion Money Management, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.