Buffett's Warrants

Since our last post questioned Warren Buffett's math skills regarding dividends, we felt like we should make it up to him by posting about his skill with warrants. In 2008, during the middle of the financial crisis, Buffett bought $5 billion of preferred stock in Goldman Sachs with a 10 percent dividend, along with 5-year warrants to buy Goldman Sachs stock at a price of $115. If Buffett exercised the warrants today with a payment of an additional $5 billion, he would own 9 percent of Goldman. In a deal between the parties, Goldman issued Buffett shares amounting to about 2 percent of the company at no cost! The deal appears to benefit both parties as Buffett does not need to spend $5 billion today (and has received a 10 percent dividend over the past five years) and Goldman's dilution is only 2 percent of its stock, not 9 percent.