Warren Buffet and Bank of America

Part Three BACK TO LAST NIGHT

I said to everyone last night, that the news was not what it seemed. This was not an open-market purchase. The only way a deal like this (a guaranteed 6% return, and the right to buy the stock at $7.14) would go down, is if there was a new SEC filing, new stock created, etc. This type of trade will be like the Oil Sheiks buying stock when banks were in need of cash ten plus years ago. Everyone asked what it means. I tried to explain preferred stock, and warrants, and then book value and negative book value. I tried to shed some light on GAAP (Generally Accepted Accounting Principles), and how America works at the Billion Dollar level. It made sense to me and I hope I can help you see this. The effort is worth it. Believe me, this type of knowledge is very powerful. NOTE TO READERS: This is where I'd like to explain how some of the accounting principles work, and how the banking accounting is different. I need to explain, "Marked to Market," and the like. The deal is powerful because this is a purchase of an under-valued stock, as you will see. In the next blog I will share some very powerful information that will help a lot of this make more sense. Usually I interrupt an article and wind along a winding road to get to the destination, but this information is supplemental, though interesting and casually important to this topic. If you like connecting the dots, read it and come back and pick up this story. Moving On: Here was the information gleaned from the first pass at the news. Warren Buffet is investing $5 Billion in Bank of America. He will receive a guaranteed 6% each year, or $300,000,000. He will be able to buy the stock at $7.14. The market reacted, the stock shot up. Later in the day the details became apparent and the stock backed off.

 

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