A Few Strategies From World's Greatest Investor

By ZOSIMO T. LITERATUS
Zeitgeber LC, Investments Division

Almost always you can judge an investor by his actions. Recently, world's richest man Warren Buffett revealed some strategies from the way his company Bershire Hathaway (BH) behaves.

BREAKUP FEE

Aborted weddings may have somehow brought some profit for the surprised party should "breakup fee" has practiced in relationships. MidAmerican Holdings, an energy subsidiary of BH, received 19,897,322 shares in mid-December last year from France's Constellation Energy (ECF) after a deal inked in September soured. The deal provided a breakup fee, which includes 10 percent of its common stock should either party backs out.

As of February 7, BH has sold 5,066,215 shares of ECF for an average price of $27.04, a running windfall of $136,969,137. BH stake with ECF went down to 7.45 percent from 9.99 percent, with 14,831,107 shares remaining.

DOUBLE BALLOONS

Jewelry retailer Tiffany announced on February 13 that it took a double-balloon debt worth $250 million to some BH subsidiaries. The loan pays 10 percent per annum, with the first half due in eight years (2017) and the remaining half in 10 years (2019).

CONVERTIBLE CORPORATE BONDS

BH increased this its position in Swiss Re by 3 billion francs (about $2.6 billion) as it bought the reinsurer's bonds that pay 12 percent a year. After three years, they bonds may be converted into Swiss Re common shares at 25 francs a share.

OPTIONS

An option is a kind of stock insurance that protects the buyer from falling shares to go beyond certain cut off price in the market but contracting with the option seller to buy the same number of shares at the exercise day.

On 3 December 2008, BH sold an option to buy 2,325,000 shares of freight railroad Burlington Northern (BN) by January 30 for whatever market price. The base price was $83.85 a share or a total of $165.4 million. BN closed that day at $77.50, making BH a premium profit of $14.76 million.

Last January 30, BH kept its promise and bought similar number of shares for $75, or a total of $174.4 million. It took a price loss of $2.4 per share for repurchased shares, or a total of $5.58 million.