There are those who think that Warren Buffett’s days of being an awesome value investor are behind him. Those people are crowing a little today after his recent darling Bank of America crossed $5 in the wrong direction, which I guess is a big deal. Here, however, is probably a thing not to think about that:
Yes, Bank of America’s stock swoon is dragging down America’s wisest investor, Warren Buffett, who now is about $1.5 billion underwater on his BofA common-stock warrants.
Disagree! I happen to have a model for that right here (earlier/caveats), and I have him very roughly breaking even (you’ll care about H24, which shows him up $52mm on his $5bn investment). This uses a 45% vol (vs. 62% mid on Jan-14 $7 calls, 77%ish for their A warrants struck north of $13, 58% 1-year realized) and 8.75% discount rate on the pref (around where I eyeball the Is and Js); you can dispute those assumptions and get a different smallish positive or negative number* but the important point is: Warren Buffett didn’t lose $1.5bn on his $5bn investment. If you’d invested $5bn in BAC common stock at around $7, when Buffett did, you’d have lost $1.5bn in round numbers. But you’re not Warren Buffett. (He is!)
Some people think that this is pretty crap – along the lines of “I’d be a great investor too if I could just get every financial firm to give me a sweetheart deal for lending them my Cherry Coke-encrusted halo” – but, of course, you can. A share of BRK/B is, like, 74 bucks. All that warranty goodness accrues to Berkshire Hathaway, not (just) Buffett.
Now, if there’s one investing strategy that I understand even less than “give my money to Bank of America to do what they will with it, what could possibly go wrong,” it’s “momentum investing,” where you buy stocks that have been going up because past results are a guarantee of future performance.** So I found this Fortune article about Cliff Asness’s new momentum-based retail mutual funds utterly baffling, and not only because a close reading suggests that these new funds were launched in 2009. Continue reading »
