Tracking Shareholder Returns On Companies Buffett Invested In During The Last Financial Crisis

Includes: BAC, GE, GS, HOG
by: Bottom Up Investments

Thursday, we wrote an article suggesting investors purchase Bank of America because, among other reasons, Warren Buffett had agreed to invest in the Company. Most of the pushback we received centered on the fact that Buffett was seemingly raking BAC over the coals on the deal. While we think this is true, we continue to applaud the deal and believe that now is a great time to make money on BAC shares. In our view, BAC was/is suffering from a lack of investor confidence, so the best possible solution was to bring in an investor like Warren Buffett to bolster the market's perception of BAC's balance sheet and liquidity ratios. Thursday's share price reaction suggests that investor skepticism may have subsided for the time being.

As we were already long BAC before today, this was merely an anecdotal observation on our part. Later in the day, we decided to see what the shareholder returns have been on Buffett's three similar investments in Goldman Sachs (NYSE:GS), General Electric (NYSE:GE), and Harley Davidson (NYSE:HOG), which were made during the heart of the credit crisis. Similar to BAC, all three of these companies faced serious questions about their viability at the time the investments were made. The returns are in the chart below.

1 Yr Later 2 Yr Later 3 Yr Later Today Peak Date of Peak
10/1/2008 10/1/2009 10/1/2010
GE $ 21.92 $ 15.20 $ 15.99 $ 15.45 $ 21.65 Feb 2011
Cumulative return -30.7% -27.1% -29.5% -1.2%
9/24/2008 9/24/2009 9/24/2010 Today Peak
GS $ 129.13 $ 180.11 $ 146.27 $ 109.84 $ 193.60 Oct 2009
Cumulative return 39.5% 13.3% -14.9% 49.9%
2/4/2009 2/4/2010 2/4/2011 Today Peak
HOG $ 12.15 $ 22.25 $ 40.87 $ 34.15 $ 46.88 Jul 2011
Cumulative return 83.1% 236.4% 181.1% 285.8%
Average Cumulative return 30.7% 74.2% 45.5% 111.5%

As the chart shows, shareholders would have benefited mightily had they bought shares in HOG, but GE has not yet returned to its pre-Buffett share price. GS shares appreciated significantly in the first year, but have since tapered off due to company-specific concerns. The average 1 year and 2 year returns (cumulative) for shareholders following these three investments were 30.7% and 74.2%, respectively.

In two of the three instances, investors would have profited handsomely had they followed Buffett's lead and bought shares in the companies he invested in. While GE is a notable exception, we think two out of three isn't bad, particularly when we liked the idea before Warren's investment. We remain long BAC calls and have no positions in the other stocks mentioned.

Disclosure: I am long BAC.