NEW YORK - The $5 billion purchase by Warren Buffett today now makes this his largest position by ownership. Buffett will now own a tad over 6.36% of BAC's common stock but the stock he owns is in warrant form until he converts it.
Buffett the legendary investor from Omaha Nebraska has made a career of running for the entrance when others run for the exit. But he is selective and enjoys only choosing the best of the best. Or if not the best, the stock has such compelling value which makes it the best. Buffett with his BAC purchase did just that.
Buffett will receive 6% preferred share indefinitely which BAC has the right to call at any time. On top of this Buffett received 700,000,000 warrants to purchase BAC shares at $7.14 for 10 years. This means Buffett's theoretical value of his shares is at least $800 million and given its 10 year life to buy a warrant it may be worth more than $3 billion. Right now traders are paying $1 dollar premiums for $10 call options due 2013. Buffett gets call options at $7.14 and only paid a 30 cent premium.
Buffett shows his true genius once again. The hedge funds and all the stupid investors allowed him to do it once again and he will continue out maneuvering these investors who focus on price not value.
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