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Jewish World Review Oct. 16, 2008 / 17 Tishrei 5769 Want to be like Buffett? There are ways By Gail Marks Jarvis
http://www.JewishWorldReview.com | (MCT) Frustrated by the financial meltdown, some investors have an idea: Stand next to a winner. And not just any winner. They're eyeing Warren Buffett. "I'd like to get a piece of the sweetheart deals he got at Goldman and GE," one investor said at a recent Chicago gathering as his friends tried to figure out how a small investor could partake. "People like us can't get deals like that," he added, "and Berkshire Hathaway stock is too expensive." Berkshire Hathaway, of course, is the company Warren Buffett operates. Through Berkshire, Buffett recently threw as much as $13 billion to Goldman Sachs and General Electric to help the companies weather the stresses that are hitting financial companies. In return, Buffett was given extraordinary terms that smaller investors can't receive on their own through high-quality bonds or preferred stock. For example, at General Electric, Buffett is being offered 10 percent annual dividends on $3 billion in preferred shares he purchased. And if over the next five years General Electric stock recovers from the general nervousness in the markets and starts to rise, Berkshire will have the opportunity to buy $3 billion in common stock at the low price of $22.25 a share. Compared with Berkshire's nearly $280 billion in assets, the GE and Goldman deals are not huge. Still, if investors are attracted to the opportunities that Buffett picks up, they do have options to stand with him directly through Berkshire, although they are expensive. Berkshire Hathaway Class A shares recently sold for about $118,000, which is pricey for the investor with a relatively small portfolio. Because it's not wise for an investor to depend too heavily on a single stock, spending $118,000 might not provide the opportunity to diversify properly. The Berkshire Class B shares are perhaps a more affordable alternative at more than $3,800. The B shares offer investors the same exposure to Buffett's business expertise as the A shares. The difference is simply voting rights, with A share stockholders receiving full voting rights, and B Shares receiving partial voting rights. Even $3,800, however, may be daunting for the little guy. But those with Buffett envy can satisfy their desire to stand with the so-called Oracle of Omaha in a less direct way than owning Berkshire Hathaway shares. Many mutual funds own stakes in Berkshire Hathaway. In fact, during this period of market insecurity, some have added to their positions in the stock. Even mutual managers sometimes feel more comfortable standing with a winner. For example, the Fidelity Contrafund, which is one of the country's largest mutual funds and a mainstay in many 401(k) plans, was recently adding to its Berkshire Hathaway position. Berkshire was the second-largest investment in the fund, behind only Google. In a giant fund such as the Contrafund, which diversifies risk by investing in more than 200 stocks, the impact of Berkshire on an investor's returns can be muted. But it is a way for small investors to feel like they are cozying up to Buffett. Other mutual funds that were recently holding large stakes in Berkshire, according to Morningstar Inc., were Midas Special, Meehan Focus, Weitz Partners Value, BlackRock Exchange, Ariel Focus and Tilson Focus. All had more than 5 percent of their assets in Berkshire, an exposure that can have an effect either up or down, based on Buffett's prowess and the action of the stock. But Berkshire - or Buffett's investments in Goldman or General Electric preferred shares - is not a sure thing. Berkshire stock has fallen about 14 percent since its close on Oct. 1, the day the GE deal was announced. Still, analyst Tom Kersting of Edward Jones thinks that reflects nervousness about financial stocks in general, rather than Berkshire specifically. Berkshire Hathaway is viewed as a semi-financial services stock because it owns insurance companies such as Geico and has large stakes in financial firms, including American Express. But Berkshire is a diversified holding company that owns and operates more than 70 businesses, and has substantial stakes in non-financial companies such as Coca-Cola and Procter & Gamble. "They've been throwing the baby out with the bathwater," Kersting said, noting that Buffett is well-positioned for the current market environment because he has a substantial stash of cash available to buy bargains now. The results of opportunistic purchases, however, might not show up for a while, Kersting said, so investors shouldn't expect results in a few months or a year. Of course, patient investors could be faced with a disappointment. Analysts have been wondering for the last few years whether Buffett will retire and what that will do to Berkshire stock. Still, Buffett has said he has no intention of retiring, and those who know him say they can't imagine him wanting to do so. Every weekday JewishWorldReview.com publishes what many in the media and Washington consider "must-reading". Sign up for the daily JWR update. It's free. Just click here. Gail Marks Jarvis is a personal finance columnist for the Chicago Tribune and author of "Saving for Retirement without Living Like a Pauper or Winning the Lottery." Comment by clicking here.
09/29/08: Money protection only goes so far, so know the risks
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