I Love You, Warren Buffet

Sometime around 1980, can't remember exactly, there was a flight of money from many countries to Switzerland. The clock makers had so much money pouring in that the banks took interest rates to zero and even for a period of time were actually making you pay ½% interest to them to put your money in their banks. Yes, it actually happened because people believed their money was going to be safe there. It was.

Warren Buffett recently sold some convertible debentures - about $400 million. These are bonds that can be converted into shares of stock in the same company, namely Berkshire Hathaway (BRKA). Mr. B said the money was to be used for general purposes and possible acquisitions. Their statement indicates they have plenty of money now, but Warren is very good at buying companies that are in trouble.

What Warren has done has never been done to the American investor before or at least I haven't heard of it. The bond portion of the offering only pays 3% interest. Not much, but Berkshire Hathaway has an excellent history of making money so investors would rather have 3% for sure than 5% of maybe not getting their money with another company. But here is the kicker that sets Mr. B apart from anyone else. Along with the debenture come a warrant. A warrant in this instance is like an option to buy additional shares - nothing new here. If you want to keep the warrant active you must pay Berkshire Hathaway 3 ¾ % interest.

The warrant is convertible into the stock of Berkshire Hathaway at a price 15% higher than the price on May 21, 2002, about $78,000. The stock has to go up to $89,700 to break even. In other words you are giving Mr. Buffet say $100,000 for which he is paying you 3%, $3,000 annually, and in turn to keep the warrant you are then paying him 3 ¾%, $3,750 annually. He is using your money until the year 2007. Wow! What a deal - for him. The reason Warren can get away with this is that he has a great reputation for making money. If, and that is a big "if" in this bear market, the stock of Berkshire does go up you will be able buy it at a real bargain. That is the reason you are paying the premium. Today's Price/Earnings ratio is 101 and the S&P Index is 41. What will the P/E and price of Berkshire be if the P/E of the S&P goes to 17?

Mr. Buffett himself has said we are going to have to be very astute to make 5% in the market over the next 7 or 8 years. Any stock in a bear market is like a ship that is in the water. When the tide goes out all the boats go down. This is a bet that investors believe Warren can beat the bear. He thinks we are in for a long-term bear from which he can't help but profit because he will not have to pay off the warrants.

It is hard to believe anyone who is an astute investor would buy this; however, the offering was oversubscribed. Warren Buffet you are a genius.

Al Thomas' best selling book, "If It Doesn't Go Up, Don't Buy It!" has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter to receive his market letter for 3 months at www.mutualfundmagic.com to discover why he's the man that Wall Street does not want you to know.

Comments to [email protected]

Copyright Albert W. Thomas All rights reserved.

In The News:


Investor's Business Daily

IBD's Best Mutual Funds 2017 Awards | Stock News & Stock Market ...
Investor's Business Daily
Except for the Harlem Globetrotters, repeat winning is hard. Even our Best Mutual Funds 2017 Awards winners have few repeats from last year.
Should you invest directly in equity or via mutual funds?Economic Times
Are you risk averse? Give hybrid mutual funds a chanceFinancial Express

all 10 news articles »

Motley Fool

The Worst Funds for Your 401(k)
Motley Fool
And all three of these options are far cheaper than the average U.S. stock mutual fund's expense ratio of about 1.25%. However, notice that there is a 65-basis-point difference in gross expense ratio between the highest- and lowest-cost funds on the ...
Mutual fund group aims for fee transparency with 'clean shares'San Francisco Chronicle

all 4 news articles »

Bloomberg

ETFs Are Giving Mutual Funds a Run for Their Money
Bloomberg
Mutual fund ownership of equities is at its lowest level in nearly 13 years, according to a research note from Goldman Sachs Group Inc. Meanwhile, exchange-traded funds are becoming an even bigger force in the stock market, the team led by Chief U.S. ...

and more »

US-based stock mutual funds take in most cash in a year -ICI
Reuters
By Trevor Hunnicutt NEW YORK, March 1 Fund investors' aversion to riding the market's highs showed signs of waning as stock mutual funds attracted the most cash in a year in the latest week, Investment Company Institute data showed on Wednesday.

and more »

Moneycontrol.com

Time to be careful: Fund managers are shying away from stocks
Moneycontrol.com
A look at the portfolio of ICICI Prudential Balanced Advantage Fund, the largest mutual fund scheme In India investing in stocks reveals that the exposure to stocks have been cut over last one year. The net equity investments of this scheme are down to ...

and more »

Barron's

ETFs Chasing Mutual Funds as Stock Buyer
Barron's
Mutual funds' outflows since last year have driven their equity ownership to a nearly 13-year low, according to Goldman Sachs. ETFs, meanwhile, are growing by leaps and bounds as a stock market force. “Corporations and ETFs will continue to drive ...


Mutual funds invest over Rs 2000 crore in stocks in February
Economic Times
Mutual fund managers purchased stocks worth a little over Rs 2,000 crore in February --- making it the seventh straight month of positive inflow in equities --- on sustained participation by retail investors. Fund managers have been investing ...

and more »

The Indian Express

Mutual Funds' exposure to bank stocks hits record Rs 1.2 lakh crore in February 2017 end
The Indian Express
Mutual Fund managers seem to be bullish on bank shares as they raised their allocation in the sector to an all time-high of over Rs 1.2 lakh crore at the end of February, primarily on account of cheaper valuations. In comparison, fund managers had ...

and more »

Utility Stocks for Retirement Investors: 1 Stock, 1 ETF and 1 Mutual Fund
Investorplace.com
While utility stocks have taken it on the chin lately with the Federal Reserve starting to raise rates, the reality is, they still make sense for retirement investors. Utilities For Retirement Investors: 1 Stock, 1 ETF and 1 Mutual Fund. Source: 401(k ...


CNBC

Why mutual funds could be on their way to another lousy year
CNBC
The improvement comes amid multiyear lows in the tendency of stocks to correlate up and down together, as well as an elevated level of dispersion, or the difference between returns for various sectors. Stock pickers in actively managed mutual funds ...
Stock pickers lift performance in battle of the benchmarksFinancial Times

all 4 news articles »
Google News

Play another Day

Money management starts with protecting your capital, realizing profits and... Read More

Online Investing & Online Stock & Share Trading: Difficulty in Taking Stop Losses in the Market

This is an extract of an article which was first... Read More

Evaluation I

An insane person cannot evaluate an insane evaluation system.As you... Read More

Price to Earnings Ratio - P/E

After finding the price of a particular stock, usually the... Read More

Hedge Fund Advertising

Have you seen all those big full page ads for... Read More

Being Wrong Buying Stock is Okay

Being wrong is OK, but let's not carry it to... Read More

Option Spread Trading

Spread trading is a technique that can be used to... Read More

A Triple Dipper: How to Make 3 Profits on 1 Stock Trade

This is a rather simple strategy with which I am... Read More

Cash

How many people went to a cash position this week?... Read More

Discipline

One of the great "secrets" of successful people is discipline... Read More

Again With the Bubbles?

A few years back ? it seems like an eternity... Read More

The Next Bull Market

We are already in it, but you can't see it.... Read More

Is The Bear In The Cage?

For the last few weeks we have seen the stock... Read More

Financial Crime

Congress recently passed another new law that is supposed to... Read More

Moving Averages

Every day on CNBC-TV they show a 200-day moving average... Read More

Take The Time

You must take the time once a month to review... Read More

Swing Trading Strategies

Using Swing Trading Strategies and Technical Analysis when Trading Stocks... Read More

Dollar Cost Averaging

Dollar cost averaging is one of the most popular ideas... Read More

Selection Vs Direction

As I have said many times before in this column... Read More

Duct Tape

Did you run out to buy that duct tape yet?... Read More

A Penny for Your Stocks

According to Investopedia Inc. the penny stock market has seen... Read More

Fake Money

Reach in your pocket and take out that big roll... Read More

Shorting Stocks ? The Basics, Part II of II

After the publication of the first part of this two... Read More

Dividend Paying Stocks

I would like to share with the reader an article... Read More

Emotional Trading

The single most expensive stock market trades are those made... Read More