- Warren Buffett’s Berkshire Hathaway bought $5 billion of preferred stock in Goldman Sachs during the 2008 financial crisis.
- In 2011, Goldman Sachs redeemed the shares, earning Berkshire Hathaway a profit of $3.7 billion.
- Ten years after the crisis, Berkshire Hathaway still owns $3.13 billion of Goldman Sachs stock.
In September 2008, Warren Buffett’s Berkshire Hathaway conglomerate invested $5 billion in Goldman Sachs in response to Goldman’s need to raise capital in the early days of the financial crisis. The purchase was seen as a boon for the financial markets, as it represented a vote of confidence from one of the country’s savviest investors.
“It was something we hadn’t seen before,” said Buffett in a Sept. 2018 interview with Vice News about the 2008 financial crisis. “The system had stopped. I describe it as an economic Pearl Harbor, except it was the economy that had gotten hit by an unbelievable force.”
The Oracle of Omaha understood that his investment was more than a shot in the arm for the investment bank.
“When I made that investment in Goldman Sachs, that was not just having confidence in Goldman Sachs, that was also confidence that we would not unnecessarily drive over a cliff without the United States government doing the things it should do,” he said.
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So, what happened to Buffett’s investment?
The 2008 investment was made in preferred stock, so Goldman Sachs had the ability to redeem the shares, which it did in 2011. In the three years Berkshire Hathaway held the stock, it earned $3.7 billion, of which $1.27 billion was dividends.
When Buffett made the original investment, he also received warrants to buy $5 billion of Goldman Sachs common stock at $115 a share. In 2013, Buffett exercised the warrants, receiving $2 billion in cash and 13.1 million shares of Goldman Sachs stock.
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What Goldman Sachs Stock Is Worth Now
Today, Berkshire Hathaway owns 13.2 million shares of Goldman Sachs, having bought and sold shares since 2008. With the stock closing at $237.40 on Sept. 20, 2018, that puts Berkshire Hathaway’s stake in the investment bank at over $3.13 billion.
This investment is a good example of one of Buffett’s long-time investing strategies: “Be fearful when others are greedy and greedy when others are fearful.”
Although the argument could be made that Buffett was not especially greedy in this case — he seems to have been at least partly motivated by concern for the economy as a whole — his decision to stick with Goldman stock reflects his preference for investing strategies that pay off over the long term. In the interview on the financial crisis, he noted that “fear wants to leave en masse,” but that “confidence comes back in the door one at a time.”
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