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(B)(N) GS The Goldman Sachs Group Incorporated

March 26, 2013

Drama. The Wizard of Omaha, Mr. Warren Buffett, and his company, Berkshire Hathaway Incorporated, have returned to their well-dressed roots and successfully laundered (or “garnished”) the fine suits at The Goldman Sachs Group Incorporated (Reuters, March 26, 2013, Buffett to take major Goldman Sachs stake in warrant deal). Rather than exercise his warrants for 9% of the company at $115 per share, which is a significant discount to the current stock price of $147 and a before tax profit of about $1.3 billion, Mr. Buffett has accepted a more fashionable presentation of about 2% of the company, still worth $1.3 billion, for free, and has basically, in total, doubled his $5 billion investment in the company during their hirsute and sack-cloth days of 2008 when there was some question of whether the bank could timely pay its bills and carry on business.

We are also the beneficiaries of the Emperor’s new clothes, because the company, after a long absence and severe dressing down since 2009 (please see Exhibit 1 below), re-entered the Perpetual Bond™ at $130 last year and is currently trading at $147 and pays a dividend of $2 per share per year or $900 million per year to the shareholders for a current yield of 1.4%, and the stock has remained buoyant absent a significant dilution of the stock that would have resulted from the exercise of Mr. Buffett’s warrants.

However, our estimate of the downside due to stock price volatility is minus ($15), which would almost wipe out our profits if exercised at $130 or so. The shorter term June put at $140 is available for $3 today and an offsetting call at $150 can be sold or shorted for $4, so that we could actually gain $1 per share today ($3 less $4) by collaring the price between $140 and $150, and continue to collect our dividends regardless of how the future unfolds or unravels in the near term. Now that’s something to think about. Goldman Sachs is a world bank with significant global exposure to the capital markets. Fashions change quickly and unpredictably and there is always the possibility of a another “wardrobe failure”, so to speak.

Exhibit 1: (B)(N) GS The Goldman Sachs Group Incorporated – Risk Price Chart

(B)(N) GS The Goldman Sachs Group Incorporated

The Goldman Sachs Group Incorporated is a global investment banking, securities and investment management firm. Its three segments are Investment Banking, Trading and Principal Investments and Asset Management and Securities Services.

(Please Click on the Chart to make it larger if required.)

With reference to Exhibit 1, we only buy or hold a stock if the ambient stock prices appear to be at or above the price of risk or Risk Price (SF) which is currently $120 (Red Line Stock Price (SP) above the Black Line Risk Price (SF)) and will not change until new balance sheet information becomes generally available.

Postscript

We are The RiskWerk Company and care not a jot for mutual funds, hedge funds, “alternative investments”, the “risk/reward equation” and every other unprovable artifact of investment lore. We have just one product

The Perpetual Bond™
“Alpha-smart with 100% Capital Safety and 100% Liquidity”
Guaranteed
With No Fees and No Loads on Capital

For more information on RiskWerk, please follow the Tags or Categories attached to this Letter or simply enter Search for additional references to any term that we have used. Related data may be obtained from us for free in a machine readable format by request to RiskWerk@gmail.com.

Disclaimer

Investing in the bond and stock markets has become a highly regulated and litigious industry but despite that, there remains only one effective rule and that is caveat emptor or “buyer beware”. Nothing that we say should be construed by any person as advice or a recommendation to buy, sell, hold or avoid the common stock or bonds of any public company at any time for any purpose. That is the law and we fully support and respect that law and regulation in every jurisdiction without exception and without qualification to the best of our knowledge and ability. We can only tell you what we do and why we do it or have done it and we know nothing at all about the future or the future of stock prices of any company nor why they are what they are, now. The author retains all copyrights to his works in this blog and on this website. The Perpetual Bond®™ is a registered trademark and patented technology of The RiskWerk Company and RiskWerk Limited (“Company”) . The Canada Pension Bond®™ and The Medina Bond®™ are registered trademarks or trademarks of the Company as are the words and phrases “Alpha-smart”, “100% Capital Safety”, “100% Liquidity”, ”price of risk”, “risk price”, and the symbols “(B)”, “(N)” and N*.

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