Goldman Sachs Group, Inc. (NYSE:GS) is one of the powerhouse Wall Street banks that has shown their abilities over the years, dominating many aspects of finance particularly mergers and acquisitions. However, this latest will surprise you. Last year, Goldman traders went through the process of getting rid of all their risky assets on their balance sheet to appease the Fed. One holding that they got rid of was a loan to Lee Enterprises (LEE) which took about $85 million in loans from Goldman.
Unfortunately, after acquiring the trade at around 80 cents on the dollar, they had to sell the debt for 65 cents a share. That’s a hefty $13 million loss. The interesting part here is that the buyer of this so called “failed investment” was a division in Warren Buffett’s Berkshire Hathaway Inc. (BRK.A) (BRK.B).

The even more interesting part is that Buffett holds those loans with a gain attached. The loans are not only above the 65 cents on the dollar that Buffett purchased it for but the investment currently sits at 82 cents on the dollar, more than what Goldman bought it for.

This just reconfirms that Buffett is not called a legend for no reason. He was able to sift through Goldman’s trash and pick what he liked and it turned out to be the right call. In this case, Buffett has shown superior bottom picking skills which have outsmarted one of the most powerful banks on Wall Street. Originally, it was not released that Buffett was the buyer of the Lee loans. However, it was known that an unknown trader had “embarrassed” Goldman.

In the last week, Buffett has been purchasing more Lee loans to add to his position. The legendary investor purchased $5 million worth of Lee loans last week with the average cost being 81.5 cents on the dollar, more than Goldman originally paid to open the position. Obviously, Buffett caught something in Lee Enterprises that even Goldman traders couldn’t find which is interesting to me because Wall Street still is oriented towards value investing, which Buffett is known for. So, if both parties where using the same method of analysis, fundamental, with the same investment strategy, value, how did Goldman miss it?

Ultimately, what it comes down to is that Goldman was under pressure to raise its tier 1 capital requirements and they didn’t want to wait for Lee Enterprises or they simply saw the loss and wanted to stop the bleeding. Either way, it is unfortunate for Goldman that they had external pressures that made them sell this asset prematurely. As for Buffett, he continues to impress and prove that he is a legendary investor.