> Warren Buffett Blog: Who Else Could Have Made Warren Buffet-Style Money in the Crisis? - Wall Street Journal (blog)

Monday, October 14, 2013

Who Else Could Have Made Warren Buffet-Style Money in the Crisis? - Wall Street Journal (blog)

The answer is anybody, according to Warren Buffet.

“The time to buy is when there’s blood in the streets,” Baron Rothschild is often credited with saying. Turns out that is easier said than done, given that metaphorical (or sometimes literal) blood often comes when most people are short on money to invest.

But for those with money to spend, a good crisis can be a beautiful thing, and few can claim to have had a better crisis than Warren Buffett. As the WSJ’s Anupreeta Das reports today, he made a series of huge bets after the financial crisis kicked in:

Starting with Mars in April of 2008, when credit markets began to tighten in advance of the financial crisis, some big-name companies looked to Mr. Buffett—and Berkshire’s huge war chest—as a lender of last resort.

In addition to much-needed capital, the companies acquired something equally valuable: Mr. Buffett’s implicit endorsement of their long-term prospects. Shares of these companies generally went up after they revealed Berkshire’s involvement.

In six major deals, Berkshire invested a total of about $26 billion. Mr. Buffett used Berkshire’s gigantic cash hoard to move swiftly and exact lucrative terms that created a stream of payments from the borrowers.

Of that $26 billion, he’s now pulled back nearly 40% of it in pretax income from the investments:

And while few of us were in the position to loan Goldman Sachs a quick $5 billion, any of us could have made similar returns from a much more accessible gamble:

“In terms of simple profitability, an average investor could have done just as well investing in the stock market if they bought during the panic period,” Mr. Buffett said in an interview Saturday. He was referring to a monthslong stretch beginning in the fall of 2008 when the stocks of some of his favorite companies, including Wells Fargo and American Express fell to historic lows. “You make your best buys when people are overwhelmingly fearful.”