Mark Moran

Why Is Everybody Selling as Buffett Is Loading Up?

Yes, Buffett's purchases of other companies is encouraging, and John Templeton also encouraged investors to buy when there is blood in the streets, which is certainly the case now. But you skirt over the fact that with GE and GS, he got terms that are unavailable to holders of common stock. He has an instrument that yields 2x the GE common and 10x the GS common; due to the 100% warrant coverage, he has all the upside of the common holders; and due to the liquidation provisions, he loses only in the event of an utter failure of the company. GE's current market cap is $225 billion; for a new buyer of common to break even, the market cap must remain at $225 billion; for Buffett to break even, he just needs there to be $3 billion available (plus the value of any other preferred with equal or greater priority) after the Company is liquidated and debts are paid. So Buffett is safe so long as GE can maintain at least 1.5% of its current market cap. A rather shallow vote of confidence.

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