How To Replicate Buffett's BAC investment?

Discussion in 'Stocks' started by shortie, Sep 18, 2011.

  1. he got BAC warrants and preferred stock. are those freely traded? what are the symbols?

    I see warrants quoted here. Are they the same kind Buffett got? OF AMERICA WARRANTS/
    Detailed Quote for BANK OF AMERICA WARRANTS (BAC.WS.A)
    $ 3.39

    <<Buffett's $5 billion is buying him 50,000 shares of a special class of so-called "preferred stock," which will pay him a 6 percent dividend, or $300 million a year.

    BofA can buy back Buffett's investment at any time for a 5 percent premium

    In fairness, you could get a bigger dividend by buying BofA's preferred stock. But you couldn't get the best part of Buffett's deal, which are the warrants. These give Berkshire the right to buy 700 million shares of BofA stock at $7.14 a share at any time over the next 10 years. Warrants are usually issued at a substantial premium to the issuer's stock price, but Buffett's were issued at only a tiny premium to BofA's closing price last Wednesday. There are lots of ways to think about how much these warrants are worth, but most analysts and observers pegged the value at somewhere around $3 billion. Yes, that's $3 billion that BofA handed Buffett, gratis. You try getting that deal!
  2. Do you even know how preferred stock is priced? Any familiarity with senior debentures?

    The difference between dividends and a perpetuity:

    Pros and Cons of a Perpetuity:
    1. Perpetuity value(dividend) is fixed.(Pro)
    2. No cap gains from market flux (Con).. because dividend payments are consistent, per per share of preferred does not change.

    Pros and Cons of Dividends, Traditional Common Stock:
    1. Dividend value can change year to year. (Con)
    2. You can enjoy cap gains from market flux. (Pro)

    Buffet Example:

    $6,000/0.06 = $100,000 per preferred share
  3. i am not an expert but your 2. can't be entirely correct.

    price per share of preferred stock may change with time