In December, I did a quick Christmas valuation analysis of
General Electric and concluded that $16 was too much to pay for the
company, given the current market environment and the company's
enterprise multiple.
Since then, GE (GE)
has given up tens of billions in market capitalization and just
recently bounced off a low of $10.66, a price that has not been
seen in over a decade.
Meanwhile, the investment legend Warren Buffett was caught buying into GE when it was
trading in the mid 20's. Of course, when Buffett buys stock
he gets extra special incentives. He received an option to
buy 3 billion GE at $22.25 in the next five years and also receives
a 10% dividend (callable within three years). Investors who
followed him in, of course, have gotten a rude awakening - and no
special incentives.
Warren Buffett has taken a hit, but it is just no comparison to
the short term slaughtering of common investors or even hedge funds
who mistakenly believed in Warren Buffett's extraordinary
leadership position in the stock market.
It's important to note the difference between us and a person
like Warren Buffett when it comes to the stock market. For
Warren Buffett, making a billion or losing a billion is meaningless
for his day to day life. A billionaire does not need any more
money. And a billionaire can lose a tremendous amount of
money, but is highly unlikely to ever become desperate or in a
survival mode.
It may be time for the myth that is Warren Buffett to be
shaken. Buffett’s father was, of course, a Congressman
and stock broker. Little Warren did not grow…
