Berkshire Hathaway Incorporation (NYSE:BRK.A) Does Not Plan To Invest More in Its Biggest Holding


Goldman Sachs (NYSE:GS), a $110 billion investment bank, is the 11th biggest bank in the whole world, mainly because of its chief investor’s $2.1 billion venture in the company. The bank is the largest stock holding of Warren Buffet, and there are a number of reasons for it.

Goldman Sachs (NYSE:GS) and Berkshire Hathaway Incorporation (NYSE:BRK.A) entered into a deal worth $5 billion. The deal was made in the year 2008, and was termed as ‘vote of confidence’ by CNBC. The then chief executive officer of Goldman, Lloyd Blankfein, made the deal possible.

According to the terms of the agreement, Berkshire was given a 10 percent dividend yield on its $5 billion stake in Goldman Sachs. Berkshire was also given a choice to buy extra stocks in Goldman Sachs (NYSE:GS) during a time period of 5 years at a price rate of $115. However, a limit of $5 billion was imposed; meaning that Berkshire could only get $5 billion worth of stocks at a rate of $115.

Where Berkshire did get an annual yield of $500 million from its stocks in Goldman Sachs (NYSE:GS), the company could not enjoy the profits for long. Goldman was restricted by the Federal Reserve to not give away this yield for quite a while.  Federal Reserve gave Goldman Sachs the permission to redeem its shares, which the company did redeem in the year 2011.

But it is important to note here that the redemption by Goldman Sachs (NYSE:GS) did not affect Berkshire as such, for the company got a one-time investment gain of $1.25 billion in the second fiscal quarter of the year 2011.

Common stock and preferred stock cannot be considered as equal; there still remains a distinction. The Federal Reserve allowed Buffet to buy the common shares at the agreed price of $115.

Both the companies entered into an agreement that allowed Berkshire Hathaway Incorporation (NYSE:BRK.A) to purchase the shares of Goldman at an average price of 10 day period. A total of 43.5 million worth of shares could have been bought using this strategy.

Warren buffet, at a recent meeting of Berkshire, confessed that the emerging technology is posing a lot of problems for the company’s biggest cash source.  The company is afraid of investing more in the banking sector. However, market experts are of the view that this particular industry sector will be worth $2 trillion in the upcoming months. So, those of you who are planning on investing somewhere but just cannot find the right company to invest in, can avail the opportunity. Some of the traders have already locked in the deal.

Coming to stock price of Berkshire Hathaway Incorporation (NYSE:BRK.A), the company is currently trading in the range of $218,275 to $219,610. The total market capitalization of the company is $358.02 billion whereas its P/E ratio is 17.37. As for the stocks of Goldman Sachs (NYSE:GS), the company is currently trading in the range of $189.59 to $190.66.