Poohbear

Why Is Everybody Selling as Buffett Is Loading Up?

Rokjok777, good point. However, if Buffet thinks the bottom is still ahead, why doesn't he wait further so he can get even better deal, since GS and GE will be even more desperate by that time?

Buffett's Big Bet: The Real Value of the Berkshire Investment in Goldman Sachs

Andrew, excellent analysis. However, I'd like to be less generous about the assumptions.

1. As you say, Jan 2011 110 call option for GS shows the implied volatility is 44%, however, we can imagine the volatility of GS stock will drop soon, maybe a implied volatility of about 30% is more appropriate for valuing these warrants.

2. You value the future dividend with 10% discount rate, but maybe we need a much higher discount rate like 15% considering the current high-risk status of financial markets. What's the yield of GS corporate bond? The discount rate should be higher than the bond yield.

3. Instead of assuming GS will buy back the shares in five years, why not simply using the preferred shares valuation formula P = D/R, since D is always fixed at 10% ?