Warren Buffett: The Oracle of Omaha shows the way…

Warren Buffett: The Oracle of Omaha shows the way…

Today I’m going to hand over the Daily Reckoning to my colleague Jim Rickards.

The G20 meeting is on in Germany. Jim can bring you the inside view from his contacts in Washington, and his own analysis.

A quick word from me before I hand over to Jim…

Last month I made the case for picking up an ETF on US banks if you were happy to hold for the foreseeable future.

That brings me to Warren Buffett. The Wall Street Journal reported last week that the so-called Oracle of Omaha is going to become the largest shareholder in Bank of America.

This is important…

Buffett is already invested in the company.

Buffet did a deal in 2011 that gave him a US$5 billion stake in preferred stock. He also got warrants to buy 700 million shares at US$7.14 each.

That was six years ago.

Buffett has made a motza on this deal already.

But note the implication of what he’s doing…

Buffet’s preferred stock paid a secure US$300 million a year in dividends, or 6%.

That’s high in today’s America.

Preferred shares rank above common stock when it comes to dividends. Buffett and other preferred stockholders gets first dibs on any cash payouts.

But there’s a limit on the upside he can get from the preferred shares, under the terms of the deal.

So he’s giving up the relative security of the dividend to become a common shareholder.


Because he thinks the price will go higher, of course!

He’s going after a bigger capital gain.

We can also note that Buffett is also heavily invested in another major US bank, Wells Fargo.

It seems to me Buffett likes the look of US banks as much as I do.

Anyway, I thought you might be interested to think about that.

Now, over to Jim…

Best wishes,

Callum Newman
Editor, The Daily Reckoning Australia