Making 870 Mil on one deal... Buffett - Posted by JT-IN

Posted by Rich-CA on September 25, 2008 at 16:26:01:

My first win at the stock game was buying IBM at $43 per share as its manufacturing business was declining from a premium income source to a commodity income source with small margins. As they re engineered the company the stock went to $100. I held on and it split 1:2 and went back to $50. It then went up to $100 and they split again. I then sold my “winnings” and the original went up to $150 and got a 2:3 split. I then sold the rest. If I had used leverage, I probably would have done a lot better than my 600%. BUT shortly after that last split we had the dot com bust that wiped out large sections of the technology sector and left the remaining stock crippled. If I had been leveraged at the time I would not only have lost my 600% I would have ended up with less than when I started.

Leverage is a two edged sword, which is why used carefully and limiting the urge to borrow more with the hopes of hitting the lucky spin is the best form of risk management besides making sure you know what game you’re playing.

Making 870 Mil on one deal… Buffett - Posted by JT-IN

Posted by JT-IN on September 24, 2008 at 05:44:22:

Warren, not Jimmy. Berkshire-Hathaway is investing 5Bn into Goldman-Sachs in exchange for warrants exchangable for Goldman stock at 115 share. In overnight trading Goldman stock went to 135 sh…

Bershire aquired 43,500,000 warrants for shares, and at an increase of 20 dollars per share, that equates to 870 mil paper profit, or a 17.5% return within hours.

Do you think that Buffett would invest 5Bn into Goldman if he thought that the Gov’t had any other option to the 700Bn bailout…? Not me.

Of course this isn’t about RE directly, but it certainly is indirectly, as our financial system seems to be up for grabs here, and outcome may depend on whether we do another meaningful deal, or not.

I just read in John T Reed’s newsletter - Posted by Rich-CA

Posted by Rich-CA on September 24, 2008 at 21:05:04:

that Buffet owns a lender as well as being the GEICO owner (read this in the restroom ad at AT&T park - owned by Berkshire Hathaway. Anyway, he is not having the foreclosure issues others have because they only lent their own money, only to owner occupants and only with 20% down.

I also read that the foreclosure rate is still around 2% nationally which only affects heavily leveraged companies as a crisis because the normal rate is around 1%. The Great Depression had a foreclosure rate of 50%. Leverage greatly magnifies results - both good and bad. Now I know why the MBA program I was in emphasized the sparing and careful use of borrowing.

Re: Making 870 Mil on one deal… Buffett - Posted by Eric in FL

Posted by Eric in FL on September 24, 2008 at 08:18:08:


I did not see this yet. Please take a look at my post below and the old rule that the one with buying power in all markets will always end up with the best deals.

Best Regards,

the power of leverage - Posted by Ben (NJ)

Posted by Ben (NJ) on September 25, 2008 at 16:17:46:

as a young whippersnapper my first foray into the stock market consisted of a little money I earned, plus a credit card cash advance combined with the extra horsepower of my 50% margin account! (made sense at the time, LOL)