Whale Watching: Buffett's Move Is Just What Investors Need

Warren Buffett’s $5bn investment in Goldman Sachs is just the sort of thing investors need and want to see during uncertain times as these.

Many cannot even fathom an end to the current the liquidity and confidence crisis besieging Wall Street’s financial institutions. Yet we are beginning to hear rumblings from the likes of Wilbur Ross, the Blackstone Group, and Japan’s Mitsubishi Financial Group as they express interest in the industry’s battered shares. Even Bank of America’s (BAC) quick decision to snap up Merrill (MER) hints that all hope is not lost.

Call them bottom feeders or saviours or whatever you prefer, but such moves combined with industry consolidation historically signal the bottoming of the economic cycle. Whale watching is a seasonal event and on Wall Street, investors typically get to watch the moves of investment whales such as those mentioned above only in distressed times.

The situation is pretty dire and if anyone saw Messrs. Paulson and Bernanke testify yesterday, both of them delivered the gravity of the situation with blunt force. There is uncertainty of a successful outcome for the proposed "bailout" which no one wants to label a bailout for public relations purposes and fear of taxpayer backlash.

This is not a call for a bottom, but savvy investors should at least give more consideration to bullish market scenarios and include financials on their buy watchlists.

Comments

[User 143167:]

10% yield on a firm that has unlimited access to the Fed and Paulson formerly worked, plus an option with the strike price 10% lower than the current price. Everyone will go for that deal.
I don't think average investors are that dumb as to believe this deal means anything to the market. But I could be wrong.

2008 Sep 24 08:55 AM

[SW Richmond:]

This is buffet paying his dues to his masters and trying to restore some confidence in Goldman. Why does the street obsess about them? I am starting to think that Goldman is like the "ring of power" in LOTR. "My Precious!"

I want Goldman cast into the lava, once and for all.

2008 Sep 24 10:01 AM

[BSCLossMan:]

I'm certainly no expert, but I simply cannot understand the price of GS shares. Now it's just a bank with a golden name, but still just a bank among many banks vying for deposits. The high valuation of GS (250/share not so long ago), and it's precipitous drop to 100, then up to 125+ reflected its status as an investment bank not a regular bank. I don't know why this isn't trading at $50, which still is giving it a premium (as a bank) for its golden name. Can anyone answer this?

2008 Sep 24 10:35 AM

[vive:]

Because Goldman is the sturdiest shark fighting a tsunami. If it doesn't get killed it sure will emerge stronger.

2008 Sep 24 11:34 AM

[GKM:]

BSCLossMan, nothing ever goes down in a straight line but it will eventually find it's level (and it ain't there yet).

2008 Sep 24 12:46 PM