{"id":23449,"date":"2011-08-26T09:30:27","date_gmt":"2011-08-26T13:30:27","guid":{"rendered":"http:\/\/countingpips.com\/fx\/?p=23449"},"modified":"2011-08-26T09:30:27","modified_gmt":"2011-08-26T13:30:27","slug":"warren-buffetts-strong-well-led-pump-and-pump","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/fx\/2011\/08\/26\/warren-buffetts-strong-well-led-pump-and-pump\/","title":{"rendered":"Warren Buffett\u2019s \u2018strong, well-led\u2019 pump and pump!"},"content":{"rendered":"

By Aaron Tyrrell<\/strong><\/p>\n

Bank of America (BoA) gapped up from $6.99 a share to trade 24% higher on the open of the New York Stock Exchange last night.<\/p>\n

 <\/p>\n

Bank of America Corp [NYSE:BAC]<\/div>\n

 <\/p>\n

\"Bank<\/div>\n

 <\/p>\n

Source: Google Finance<\/div>\n

 <\/p>\n

Thanks to Warren Buffett\u2019s $5 billion investment.<\/p>\n

So\u2026 that\u2019s it\u2026<\/p>\n

The Oracle of Omaha \u2013 the great sage of investing \u2013 has thrown BoA a five-billion-buck \u2018lifeline\u2019\u2026 He\u2019s a true believer<\/span>\u2026<\/p>\n

\u2018I\u2026 recognise,\u2019<\/em> says BoA chief executive, Brian Moynihan \u2018that a large investment by Warren Buffett is a strong endorsement in our vision and our strategy.\u2019<\/em><\/p>\n

Only Warren doesn\u2019t really believe in the bank, does he?<\/p>\n

No\u2026 Warren\u2019s company Berkshire Hathaway may be long to the hilt on bank stocks\u2026 But he doesn\u2019t believe they\u2019re sound businesses, strong or well-led\u2026 (we\u2019ll show you why this is the case in a moment\u2026 And why he\u2019s prepared to tell you differently\u2026 )<\/p>\n

But Warren truly believes in making deals that make him money.<\/p>\n

Investing in outstanding companies trading at a discount to value is one technique he\u2019s used to make who knows how much<\/span><\/em> over the years\u2026<\/p>\n

But that\u2019s not the only way to make a sound investment.<\/p>\n

In this latest case, Warren\u2019s bought $5 billion worth of \u2018preference shares\u2019. These shares give him a guaranteed return of 6% per year. Six per cent of $5 billion\u2026 $300 million a year\u2026 Not bad\u2026<\/p>\n

On top of that, the bank can buy these preference shares back from Berkshire Hathaway any time \u2013 for a 5% premium.<\/p>\n

That\u2019ll come to a $250 million gain on top of the $5 billion\u2026 Not bad either.<\/p>\n

But it\u2019s not great, is it?<\/p>\n

I mean, 5%\u2026 6%\u2026 These gains won\u2019t set the world on fire. So why bother?<\/p>\n

Consider this\u2026<\/p>\n

The stock market is volatile and uncertain right now\u2026 If you could get a guaranteed annual return of $300 million a year and a bonus $250 million when you sell, wouldn\u2019t you take it?<\/p>\n

And, if you were in Buffett\u2019s shoes\u2026 Long to the hilt on bank stocks, looking for a way to turn the tide of investor sentiment in your favour\u2026 Could you think of a better way to boost investor confidence \u2013 and get the herd on your side \u2013 than throwing $5 billion at a bank that seemed like it was down for the count last week?<\/p>\n

He might be getting a bit long in the tooth. But Warren\u2019s no dummy.<\/p>\n

He\u2019s investing in a beat-down stock trading at its lowest point since the 2008 financial crisis. His investment, when compared to the size of the company, isn\u2019t that big. He\u2019ll get a guaranteed 6% return each year. And a bonus 5% if and when the bank buys those preference shares back.<\/p>\n

 <\/p>\n

Bank of America 2008-present<\/div>\n

 <\/p>\n

\"Bank<\/a>
\nClick here<\/a> to enlarge<\/div>\n

 <\/p>\n

Source: Google Finance<\/div>\n

 <\/p>\n

Exciting? No. Profitable? Yes. Safe? You betchya.<\/p>\n

What lesson could you take from this and apply to your own investment strategy right now?<\/p>\n

Aaron Tyrrell
\nEditor, Money Morning<\/em><\/strong><\/p>\n

P.S.<\/strong> Our resident value-investment guru, Greg Canavan, looks for sound investment opportunities just like this for members of the Sound Money. Sound Investments<\/em> service every day. In fact, he has 22 current open recommendations\u2026 And 11 of them are buys. For your chance to sneak a peek at Greg\u2019s list of ASX-listed value plays, click here<\/a> now<\/p>\n

Warren Buffett\u2019s \u2018strong, well-led\u2019 pump and pump!<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Warren\u2019s company Berkshire Hathaway may be long to the hilt on bank stocks. But he doesn\u2019t believe they\u2019re sound businesses, strong or well-led. we\u2019ll show you why this is the case in a moment. And why he\u2019s prepared to tell you differently.<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-23449","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/posts\/23449","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/comments?post=23449"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/posts\/23449\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/media?parent=23449"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/categories?post=23449"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/tags?post=23449"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}