Tags: warren | buffett

Be Greedy When Others Are Fearful

Friday, 10 Oct 2008 09:29 AM

If there is one thing that we've learned from the Oracle from Omaha over the years it's that he knows how to invest.

True to form, Warren Buffett seems to be following one of his most famous investment philosophy quotes:

"Be fearful when others are greedy and greedy when others are fearful."

This is what's going on now. Buffett is being greedy when others in the market are fearful.

Recently, Buffet has executed two landmark deals that should rake in a minimum of $800 million per year.

Last week, Bufftet purchased $3 billion worth of preferred stock in General Electric with a 10 percent preferred dividend return. Buffett also has the option to buy $3 billion worth of GE common shares for $22.25 each at any time over five years.

GE has a 52-week high of $42.09.

Just a week earlier, Buffett purchased $5 billion worth of perpetual preferred stock in Goldman Sachs that pays a 10 percent dividend (that's $500 million a year forever) and warrants to buy $5 billion of common stock at a price of $115 a share.

Buffett has the ability to exercise his warrants at any point over the next five years.

Since that announcement, Goldman Sachs has traded between $120 to $135 a share. That means that if Buffett exercised his warrants today, he would make $250 million to $750 million, just on the common stock alone.

Not bad for two weeks work.

Goldman Sachs' shares had been tumbling ahead of the announcement of the government rescue plan as investors feared it could face the same kinds of funding squeezes as Bear Stearns and Lehman.

But as investors feared, Buffett was greedy, and it pays.

Believe it or not, this happens all the time. As the herd believes that the end is near, the real investors, who have done their research, buy in at heavily discounted prices and favorable terms.

At the end of the day, Buffett will sell his stake in Goldman Sachs and General Electric at a tremendous profit and leave Wall Street scratching their heads and wondering how he did it.

That is why there is such a great need for better investor and business education so that everyday Americans can know to do their homework before investing and be able to make investments that are more like Buffett's, and less like the rest of the herd on Wall Street.

There is an old proverb (Proverbs 4:7) that states "Wisdom is the principle thing; Therefore get wisdom. And with all thy getting, get understanding."

The wisdom here is that the contrarian investors are the ones who will make the money in today's market. The understanding is the ability to look at a situation, look at what Wall Street is saying, and then doing the exact opposite.

While many investors, because of recent events, may think that all is lost with their retirements, their portfolio, and the U.S. economy, now is the time for investors to make money.

We are not at the bottom. Things will get worse before they get better. But the smart investors are doing their homework now and waiting for the right time to buy in.

There are and will be huge opportunities in the equities market within the next one to two years.

Smart investors need to know to buy when others are selling, and to sell when others are buying, using the philosophy of Sun Tzu, and the execution of Warren Buffett.

That, my friends, is called "the art of investing."

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DanMangru
If there is one thing that we've learned from the Oracle from Omaha over the years it's that he knows how to invest.True to form, Warren Buffett seems to be following one of his most famous investment philosophy quotes: "Be fearful when others are greedy and greedy when...
warren,buffett
585
2008-29-10
Friday, 10 Oct 2008 09:29 AM
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