Buffett Is Not "Buying America"

 | Aug 25, 2011 | 1:00 PM EDT
  • Comment
  • Print Print
  • Print
Stock quotes in this article:








This commentary originally appeared on Real Money Pro on Aug. 25 at 11:23 a.m. EDT.

Warren Buffett is not buying America. He isn't even buying the common of Bank of America (BAC)!

He is getting more attractive terms from Bank of America than any other investor can get.

Please follow, as I try to explain why I don't expect that the Buffett/Bank of America transaction is enough to sustain the morning's swift rise in equities.

Investors are applauding Warren Buffett's Bank of America investment today. As well, the media is putting a positive spin of the deal.

I, too, believe that the financials are attractive. Indeed, on Tuesday's "Fast Money" on CNBC I expressed admiration for Bank of America and for the banking sector.

Nevertheless, a more objective assessment of his move is in order now.

Buffett's widely heralded previous buys of General Electric (GE) and Goldman Sachs (GS) were done when the common share prices were at levels that were much higher than current prices. I suspect if one did the analysis of those purchases, we would find that both GE and Goldman common have been massive underperformers as their share price changes are likely in the bottom decile of stock performers since his "preferred" purchases.

The Oracle's investments in GE and Goldman did well not because the underlying share prices appreciated -- they did not; they declined -- they did well because of a preferred structure that included a high-yielding paper with enormous warrants attached.

In the media, I am seeing a lot of flag-waving about Buffett's move today but little in the way of substance. Based on reports, it appears that Buffett did not have a deep knowledge or perform an extensive analysis of Bank of America. Indeed, "Squawk Box's" Becky Quick reported that Buffett told her he got the idea while in the bathtub. When he emerged from the tub, Buffett initiated a call to Bank of America's Moynihan and spelled out his interest in making an investment in the bank.

In other words, it appears that there was little due diligence done and that Buffett, similar to his previous deals, is relying on the preferred structure of the Bank of America deal.

If Warren Buffet was a real believer, wouldn't he simply buy the common stock like other investors? Now that would have been a reason for investors to rejoice.

It would be disingenuous for Buffett to say and for the media to conclude that in making a "preferred" investment in Bank of America that he is making a statement on the U.S. and that he is, once again, buying America.

Warren Buffett is a brilliant investor -- the best there ever was -- but the Bank of America deal is another example of how Buffett benefits from his unique stature in the world's financial community.

Doug Kass writes daily for RealMoney Pro, a premium service from TheStreet. For a free trial to RealMoney Pro and exclusive access to Mr. Kass's daily trades and market commentary, please click here.

Columnist Conversations

Foot Locker's (FL) less than expected quarterly earnings set off a round of selling the entire athletic appare...
View Chart »  View in New Window » Gold has met the first upside target off the last setup zon...



News Breaks

Powered by


Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data provided by Interactive Data. Company fundamental data provided by Morningstar. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by Interactive Data Managed Solutions.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.