Value investing: Omaha’s oracle is not the only one to see value
Fund suggests some European financials are an opportunity.
When is it wise to catch a falling knife? Received wisdom says never. But that has not stopped some investors from trying to take advantage of adverse market conditions. And when the investment world’s most highly regarded value investor starts to get long of an underperforming sector it’s perhaps time to re-evaluate it. The news that Warren Buffett’s Berkshire Hathaway had purchased $5 billion of Goldman Sachs preferred stock, yielding 10%, was enough to send its stock soaring above $125 – giving Hathaway instant profits of $437 million as it has an option to purchase Goldman common stock at $115 for another five years.
Even given the uncertainty then surrounding the proposed US bailout, it was enough to temporarily support the financials sector and Goldman’s subsequent $5 billion stock offering – such is Buffett’s reputation.
"When you get a sense of panic...when no one is trading on rationality, everyone is latching on to sentiment"
Andrew Goodwin, SVG Investment Managers
Markets overshoot – it’s a well-known phenomenon but one that is often understandably ignored by investors during the heights of euphoria, or the depths of despair.