Warren Buffet’s brilliant $US5 billion bet

Who said veteran investor Warren Buffett was losing his touch? With the United States key sharemarket breaking posting more strong gains overnight, it is becoming clear that some of the investments Buffett made at the height of last year’s panic were extremely astute.

Back in October 2008, when Lehman Brothers had just collapsed and the global financial system appeared to be headed for a meltdown, struggling investment bank Goldman Sachs was desperately searching for cash. In stepped Warren Buffet and his investment house, Berkshire Hathaway.

Berkshire made an initial investment of $US5 billion. For this, it gets a 10% annual dividend, paying out a healthy $US500 million a year. In addition, Berkshire Hathaway received warrants to buy $US5 billion worth of Goldman Sachs common shares at a strike price of $US115 that can be exercised at any time over the next five years.

As financial data company Bloomberg points out today, the surge in the US sharemarket and Goldman’s recent bumped profit result – it made $2.7 billion in the second quarter alone – have pushed Goldman’s share price to around $162.

If Buffett exercised his option right now, he’d make a profit of around $US2 billion. If this sharemarket rally continues, Buffett’s profit could climb even higher.