Berkshire financed Occidental Petroleum's acquisition of Anadarco by giving $10 bn in cash. In return, BRK received:
- $10bn wort of perpetual cumulative preferred shares with a coupon of 8% (e.g. $800m a year). OXY can choose to pay in common shares instead of cash, but in this case Berkshire will get a discount. They have done this for the most recent quarterly dividend payment, since OXY's share price is so depressed, the $200m add up to a sizable position in OXY. If OXY doesn't pay the dividend, the coupon rises to 9% and has to be paid latter. OXY can redeem these shares at 105% of the nominal value in about 10 years.
- warrants to purchase 80m common shares until 2030, the strike price is $62.5, so this option is far out of the money. But given the extremely long duration (11 years) it is quite possible that those warrants become extremely valuable over time.
Let's wait for a few years and see how Berkshire does on the OXY trade.
Maybe in the past there was lots of deep-value out there, but now we have analysts working every strategy.
Or squeeze a percent or two of efficiency by taking companies private under 1 umbrella. On average it works out, but it doesn't take many mistakes to sour it.
The source of Berkshire's strong performance was a combination of very good investments (buying American express in 1964) and insurance float, a great credit facility with negative interest rates.
Given the size of the private businesses Berkshire owns, it is quite naive to assess the firm purely on stock-picking performance of Buffett. The operating results really matter, producing $25bn+ of operating profits per year isn't too shabby.
I think its great that he doesn't invest that much into tech and is very public about it. It influences other people to not invest in every little thing that is popular if they don't understand the business mechanics behind it.
He's also overrated because of all the insider trading he engages in....he would be a lot poorer if the SEC had the resources/will to investigate his moves.
I don't think you know Buffetts track record.
His track record and methods are an open book. And have never included insider trading.
He lost a pile on the airlines and even decided to realize those losses.
He lost a pile on that petroleum company that I forgot the name of, but which crashed and burned recently due to oil prices plunging.
He hesitated a long time with tech stocks and lost a lot of money in the last decade due to opportunity cost. His only good bet in that area was Apple, and admittedly that paid off nicely, but even his big stake doesn't compensate for missing out on basically all other tech stocks. Especially since the size of his Apple investment suggests that he played a significant part in raising the Apple stock value, which means that he probably can't pull that out again without depressing the stock price.
Bottom line: I think Warren Buffett is overrated. He fails, just like anyone else.