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Inside the Market

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Warren's warrants: An update Add to ...

With Goldman Sachs Group Inc. shares down to a new five-and-a-half year low on Monday - following a report from Barclays that the investment bank will report a loss in its fourth quarter results - you can find a lesson on how hard it is to time a good entry point into a declining stock market.

Warren Buffett stunned investors in late September when he made a deal with Goldman Sachs to buy $5-billion (U.S.) worth of preferred shares that paid his company, Berkshire Hathaway Inc., a yield of 10 per cent a year. As part of that deal, Mr. Buffett is allowed to convert the preferred shares to common shares at a strike price of $115 within five years. If Goldman shares rise above this strike price, and Mr. Buffett exercises his warrants, he will profit the difference.

Trouble is, even Mr. Buffett's timing is off. Although Goldman shares initially bounced after the investment was made public, the shares have since fallen on hard times. They fell to just $70.36 in New York on Monday afternoon, down $7.42 - or about 39 per cent below Mr. Buffett's strike price.


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