A Goldman Opportunity: How Average Investors Can "Out-Buffett" Warren Buffett

Nati Harnik

Warren Buffett poses for a photo with girl scout Molly Maloy of Omaha, holding his bill-fold, at a Dairy Queen in Omaha, Neb., Tuesday, July 1, 2008. Buffett said Tuesday he was blown away by the $2.1 million that Zhao Danyang bid to win the charity auction lunch with him, that benefits San Francisco's Glide Foundation. But Buffett said the size of Zhao's bid doesn't necessarily mean the lunch will last longer than the usual three hours he spends with auction winners.(AP Photo/Nati Harnik)Harnik

Warren Buffett drives a hard bargain. When he invests billions in a company, he can generally get a better deal than the rest of us.

First, he's spending billions. And second, his money carries a 'vote of confidence' from the world's most-respected investor.

That helps explains why Buffett was able to get a very healthy 10 percent annual return on the $5 billion he pumped into Goldman Sachs in late September at the height of the credit crisis.

He didn't stop there, also getting the right to buy another $5 billion in common stock at what was then the below-market price of $115 a share.

Since then, however, the price of Goldman stocks and bonds have dropped sharply, creating what SmartMoney columnist James B. Stewart calls "a rare opportunity to invest on terms that may be even better than Mr. Buffett got."

Current Goldman stock price:

In a Wall Street Journal personal finance piece headlined How Investors Can Get In On Buffett's Goldman Play, Stewart points out that some Goldman bonds are now yielding more than 8 percent and have gone as high at 10 percent recently. The interest and principal on those "senior" bonds would get paid out before the Goldman investments made by both Buffett and the U.S. government.

Instead of warrants, Stewart says that for about $10 each you can (at last check) buy options giving you the right to purchase Goldman stock for $105 anytime before January, 2010. "That's the equivalent of the right to buy Goldman shares at $115, which is what Goldman got."

Like Buffett, you'd want to "believe in the future if Goldman" before trying to get Buffett-style terms for your own investment.

While Goldman's stock may never get back to the $250 range of a year ago, Stewart argues "it still has the talent and resources to the the world's pre-eminent investment bank," making it "worth far more than $60 a share, not to mention bonds trading at 80 cents on the dollar."

Current Berkshire stock prices:

Class A:

Class B:

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