Invest like Warren Buffet👴🏻
How to make the largest investment bank bow to your will
#77
I was thinking about this all night yesterday. Victor Asemota’s jollof rice test is his version of PMF. Remember our little friend, Product Market Fit? If your product doesn’t excite him (assuming he’s the customer) like jollof (assuming jollof is the best thing in the world to him) does, then there’s no business to be had. No PMF!
Anyway, busy night— in a client’s office trying to finish some work for potential partners. Lord give me strength 🙏🏾. BUT I always make time for my peoples (you and you) so here’s a short post sponsored by James Altucher and his knowledge on Warren Buffet. Here’s how to make a deal like our favorite grandpa and why he’s this wealthy.
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Warren Buffett doesn’t buy stocks like you and me. He doesn’t say, “Oh! Apple dropped 9% yesterday, I better go out there and buy shares.” (FYI, not a good investment strategy, but what more people do.) This is how weak investors invest. Warren Buffett is not a weak investor. You always want to get special treatment over everyone else in order to make money.
Else you are like the masses who, on average, do not make money. The average retail investor loses money every year no matter what the stock market does.
What do I mean by, “a deal”.
If a stock is at $100, that’s where civilians are buying it.
Warren Buffett is not a civilian. He gets it cheaper, better, smarter.
Example: In the middle of the financial crisis, Goldman Sachs stock was crashing . The stock was at $115. Warren Buffett could have just bought shares. He was a believer. But that’s what a civilian would do. Instead, Warren Buffett called them up and offered them a deal they couldn’t refuse when everyone was losing faith in them.
Lesson #1: Find a company that is desperate.
Here was the deal:
He invested $5,000,000,000. That would be 50,000,000 COMMON shares if he was a normal investor.
A) Get 50,000,000 PREFERRED SHARES at $100. What is this? If Goldman goes bankrupt, then Warren Buffett would come BEFORE regular shareholders (the civilians) when Goldman liquidated. He would be FIRST in line to get the proceeds of the liquidation. So the odds of him losing money were basically zero. And note: he paid $100 a share instead of $115. So he got a discount nobody else could get.
B) He got 43 million warrants FOR FREE to buy GS stock at $115. We’ll see what this means in a second.
C) He got a 10% dividend. That means while he was still in the investment Goldman Sachs would pay him $500 A YEAR. So if he just sat on the investment for 10 years, even if GS stock went down to $20, he’d make all his money back. So he gives himself several ways to make money back even if things go bad.
NOTE: GS only pays a 1.93% dividend. So Buffett was getting five times the normal dividend.
Here’s what happened:
2 years later, Goldman Sachs bought back his preferred shares for $5.64 BILLION. They paid him a premium to convince him to sell. And they gave him his dividend. So he made a quick $640 million.
When Goldman Sachs stock was at $190, Buffett (who at this point had made $640 million profit in the bank) who had paid ZERO dollars for his warrants did something called “Exercising the Warrants”.
He FINALLY paid $115 a share for his 43,000,000 shares (this is what a warrant is. It’s the right to LATER pay the price for the shares.) and then A SECOND LATER, sold those shares for $190. This was an extra 3,225,000,000 profit FOR FREE.
So altogether, because of the fact that he got a special deal, he made a $4,000,000,000 profit. If he DID NOT have the special deal, two things would have happened:
A) He was at much greater risk of losing all his money. The “preferred” aspect plus the dividend helped reduce the risk considerably.
B) He got his money back with profit just two years later. So now he had his 43,000,000 warrants without paying a dime for them. Anyone else would have just made the profit and that’s that.
He made an extra $3.22 BILLION dollars at ZERO COST. Now, that’s a deal!
He got that deal because he was “the Warren Buffett”. A persona, a super hero, a beacon of confidence that Goldman Sachs desperately needed. You get GREAT deals when you build up a significant persona, and the other side is significantly desperate. Else, the best strategy, as Warren Buffett says, is to “sit on your hands”.
BUT…CAN YOU GET THESE DEALS IF YOU HAVE NOTHING? Yes, Warren Buffett has been getting deals since the day he started. He almost NEVER bought a significant amount of stock without a special deal.
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Be like Warren Buffet. If you have any questions, shoot me an email!
Blessed weekend.
📱📱Quote of the day
I’m not a 'Business-Man'! I'm a Business... man! Let me handle my business, damn!— JAY Z
Remember folks: “Until the lion learns to write, every story will glorify the hunter.”