We can take Warren Buffett off the list because he has done what he always seems to do: shocked the investment community with his activities. He announced the purchase of $5 billion of preferred stock of investment banker Goldman Sachs (GS), with warrants to buy an additional $5 billion of common stock.
What was so shocking about the purchases was that Mr. Buffett had a very bad experience a few years ago with Salomon Brothers, now a part of Citigroup. I will have to admit that I did not think Buffett would enter the canyons of Wall Street again. But there was an overriding issue with Goldman Sachs that trumped his previous bad experience on Wall Street. Goldman Sachs is considered the Gold standard of Wall Street. The saying goes that in every merger or acquisition deal that one chair is always reserved for Goldman. They are seen as the so-called smartest guys in the room, and they have proved it year after year.
This is actually Buffett's second acquisition in a week. Last week he announced his holding company Berkshire Hathaway (BRK/A) was buying troubled energy company Constellation Energy. A deal the company had with a French concern appeared to fall apart at the last minute, and Buffett stepped in to provide much needed capital.
My guess is that with Goldman's brains and Buffett's bucks and brains we may see more out of this terrific twosome.
Now if we can just get the other four members of the list up off their behinds and into the water, we'll get this economy and market turned around, and not have to wait on the hot air that seems to always hover over our nation's capital.
At the right is our model for Berkshire Hathaway's latest Fair Value. As you may remember, the model is based on BRK's historic relationships to growth in its book value and long-term interest rates. The model says BRK is currently approximately fairly valued at $128,000 per share. The model is suggesting that based on next year's predicted book value growth that in the next 12 months the stock may rise to near $137,000. That doesn't exactly put BRK in the cheap column, but with the newsmaking ability that Mr. Buffett has and his recent opening of his check book, I would not be suprised to see the $137,000 reached sooner rather than later.
We own BRK/B in our Capital Builder accounts. We offer this discussion for information only, and as we all know that past relationships will not necessarily work in the future. The reason we show the Valuation Model is because it has been reasonably accurate in the past at predicting BRK's price.