A Sample Of Warren Buffett's Largest Profits
Warren Buffett's announcement that he will extend financing to Burger King Worldwide (NYSE: BKW) to finance its acquisition of Tim Hortons (NYSE: THI) may have come as a surprise given “The Oracle of Omaha's” prior comments on the U.S. tax system.
“It does get a little annoying when we see other people paying far lower tax rates while engaging in the same sorts of businesses that we engage in,” Buffett told CNBC in May.
As it turns out, Buffett and his firm Berkshire Hathaway (NYSE: BRK-B) committed $3 billion of preferred equity financing for Burger King to continue engaging in the same business it previously engaged in -– just at a lower Canadian corporate tax rate.
Both Burger King and Tim Hortons confirmed Buffett will not assume a managerial role in the company. Bottom line, Buffett is involved in this deal to make money, a skill the billionaire investor has demonstrated to the investment community over the years.
Buffett's "buy and hold" investment style is no secret and best summarized by one of his quotes of wisdom: “Only buy something that you'd be perfectly happy to hold if the market shut down for ten years.”
Buffett invests for the long term, unlike activist investors such as Carl Icahn who expect returns at a faster rate.
For example, in early 2014 Buffett announced a deal with Graham Holdings (formerly the Washington Post) to swap the majority of Buffett's 28 percent stake in the company for a TV station in Miami, some of the Berkshire shares Graham possesses and a few hundred million dollars in cash.
Buffett originally invested in the company back in 1973.
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Thanks for billions in profit, let’s have dinner
Warren Buffett met Brian Moynihan, chief executive officer of Bank of America (NYSE: BAC), for a dinner back in April 2013. While almost every executive in corporate America would take the call and sit down for a meal with Buffett, the gathering wasn’t social -- it was all business.
Buffett invested $5 billion in Bank of America in 2011. Buffett’s Berkshire acquired $5 billion of preferred stock that pays a six percent annual dividend and received warrants for 700 million shares that it can exercise for $7.14 per share at any point over the next 10 years.
Not bad for a deal that Buffett admitted was conceived while relaxing in the bathtub.
Shares of Bank of America were trading at $14.36 at that time.
Buffett and Moynihan dined at Omoha’s Happy Hollow Club, where Buffett is a member. It was reported that Buffett picked up the dinner tab and thanked the executive for what at the time amounted to a $5.27 billion paper profit.
Shares of Bank of America closed at $16.29 on Tuesday, making Buffett’s paper profit even more spectacular.
As of June 30, Berkshire Hathaway owned 91,500 shares of Bank of America.
Warren Buffett saves Goldman Sachs, Goldman Sachs forks over $2 billion
Following the collapse of Lehman Brothers in 2008, Goldman Sachs (NYSE: GS) needed a boost.
Warren Buffett answered Goldman Sachs’ call and acquired 13.1 million shares in the troubled financial firm at its most vulnerable state in years. Buffett’s total investment amounted to $5 billion for a preferred holding and got warrants to buy $5 billion of stock for $115 per share.
In 2011, Goldman Sachs’ CEO Lloyd Blankfein redeemed Buffett’s preferred stake, naturally at a 10 percent premium. Buffett agreed to exercise the warrants through a cashless transaction, essentially passing on his right to spend $5 billion to acquire shares at below-market prices. Buffett had the opportunity to become the bank’s largest shareholder.
Thanks, but no thanks, Buffett likely thought. Instead, the investor opted to receive an amount of stock equivalent to his paper profit: a cool $2 billion.
“He’s basically taking the profit that he would get without having to lay out the cash,” Gregory Warren, an analyst at Morningstar who covers Berkshire Hathaway, told Reuters. “He just takes the shares and sticks them in his portfolio.”
As of June 30, Berkshire Hathaway owned 12.6 million shares of Goldman Sachs, representing a 2.87 percent ownership stake.
Selling Freddie Mac Pre-Housing Crisis
At one point Warren Buffett owned nine percent of Freddie Mac. Naturally, this was prior to the financial crisis.
Buffett first bought stock in Freddie Mac in the 1980s because “it looked ridiculously cheap.” By 1998 Buffett’s overall position in Freddie Mac had risen to $3.9 billion, representing a 1,200 percent return.
Buffett demonstrated he knows how to take the money and run before the warning signs appear. Buffett sold his position in the late 1990s at an eventual profit of $2.75 billion.
Buffett sold his stake because he wasn’t buying what Freddie Mac was selling.
Buffett saw initial warning signs when Freddie Mac made an investment that was unrelated to its mission. According to The Washington Post, Buffett said that he “didn’t think that made any sense at all” and that Buffett “was concerned about what they might be doing … that I didn’t know about.”
Once Freddie Mac began projecting double-digit earnings growth, Buffett said enough is enough and sold his shares.
“I figure if you see just one cockroach, there’s probably a lot,” Buffett said.
Taking Advantage Of The Salad Oil Scandal of 1963
In 1963, Warren Buffett took advantage of a plunge in shares of American Express (NYSE: AXP) following the “Salad Oil Scandal.”
A client of American Express had placed millions of dollars' worth of salad oil as collateral to secure financing. As it turned out, the salad oil never existed at all. American Express and other banks lost a combined total of $150 million, roughly $1 billion in today’s dollars.
Shares of American Express plunged to $35; Warren Buffett saw this as a buying opportunity of a lifetime and invested $13 million in the bank.
Within a year, shares of American Express were trading for twice as much as what Buffett paid. While any investor would gladly accept this kind of return, Buffett proves once again that he is thinking long term.
Buffett's investment is a prime example in the advantages of long-term investing.
As of June 30, Berkshire Hathaway owned more than 151 million shares of American Express, which is the third-largest holding in his portfolio.
One of the greatest investing triumphs doubted by the Street
When Warren Buffett declared he had invested $1.299 billion in Coca-Cola (NYSE: KO) back 1988, many analysts thought this was an unwise move given a run-up in price, declining earnings and increasing competitive pressure.
Gurufocus did a fantastic job of crunching up the numbers in a 2013 post. The author first calculated that Buffett receives an estimated yearly dividend of $570 million. $570 million multiplied by 25 years is $14.250 billion.
As of June 30, Berkshire Hathaway owned 400 million shares in Coca-Cola.
Shares of Coca-Cola closed at $41.60 on Wednesday, implying Buffett's stake is valued at $16.4 billion.
Essentially, Gurufocus estimates Buffett has already pocketed $14.25 billion from dividends in addition to holding shares worth $16.4 billion.
Buffett: 1, Buffett's doubters: 0.