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Berkshire’s Bailout Billions Benefit Buffett

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Warren Buffett is a very rich man for good reason, he rarely makes mistakes. When a number of blue-chip companies needed a lifeline, Uncle Warren was happy to help, and in so doing he’s finally seeing the return. A return of over $10 billion and still counting.

Berkshire's Bailout Billions Benefit Buffett

According to an analysis of Buffett’s crisis-era investments by The Wall Street Journal, a hefty payment made to Buffett last week brings now brings his pretax income from those investments to 40 percent. As Buffett often says, “Be fearful when others are greedy, and be greedy when others are fearful.”

Buffett proves his credo: Buy when others are fearful

Mr. Buffett approached that figure after he collected another hefty payment last week, bringing to nearly 40% the pretax income on his crisis-era investments.

When Mars Inc. repaid the $4.4 billion that its subsidiary Wrigley borrowed last week it is believed that Buffett made no less than $680 million on that deal alone.

“In terms of simple profitability, an average investor could have done just as well investing in the stock market if they bought during the panic period,” Mr. Buffett said in an interview Saturday. He was referring to a months-long stretch beginning in the fall of 2008 when the stocks of some of his favorite companies, including Wells Fargo & Co (NYSE:WFC) and American Express Company (NYSE:AXP) fell to historic lows.”You make your best buys when people are overwhelmingly fearful.”

Suffice it to say, Buffett got very greedy and reaped the rewards like no other investor. Believing that “it’s still better to have equities than cash,” Buffett is expected to add to Berkshire’s portfolio that is presently worth over $100 billion.

Analysts and reporters alike expect Buffett and Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) to make a number of “smaller” purchases rather than something on the scale of its $26 deal for BNSF Railway in 2010.

Buffett moves fast when opportunity opens

In addition to a lifeline, companies that sought out Buffett as a last resort were also there to see what his name does when he believes in the long term future of a company, a bounce in share prices.

In six major deals, Berkshire invested a total of about $26 billion. Mr. Buffett used Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B)’s gigantic cash holdings to move fast and demand lucrative terms that created a stream of payments from the borrowers. In addition to the Mars deal, Buffet moved quick to invest in Goldman Sachs Group Inc (NYSE:GS), The Dow Chemical Company (NYSE:DOW), and General Electric Company (NYSE:GE). The last of his big deals came in 2011 with a loan to Bank of America Corp (NYSE:BAC).

The Dow Chemical Company (NYSE:DOW), which borrowed $3 billion from Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) to help fund the 2009 acquisition of Rohm & Haas, has said buying back the preferred stock is a priority, unlike Bank of America Corp (NYSE:BAC).

Mr. Buffett’s stake in Bank of America Corp (NYSE:BAC) could pay off for years. Berkshire invested $5 billion in the bank in 2011, which adds about $300 million in annual pretax income. Bank of America Chief Executive Brian Moynihan recently said he doesn’t plan to buy back the preferred shares any time soon. Berkshire also has until 2021 to exercise warrants for 700 million common shares for an additional $5 billion at $7.14 a share. Based on the bank’s current stock price of about $14, the warrants create a paper profit of nearly $5 billion.

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Brendan Byrne

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