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<<I see no such potential???>>

You're sort of right, but sort of wrong, I think.

You can reverse engineer something Buffett probably thinks about GS stock price, but not its value now, its value 5 years from now. Presumably Buffett wouldn't have bothered getting the warrants as part of the deal unless he thought it probable that GS trades over $115 5 years from now.

So we CAN conservatively claim a probability of $115 or higher for GS 5 years from now, at least in Buffett's then opinion.

So at $75 per GS today, you could figure a probability of 50% return in 5 years or which is 9% CAGR.

Now Buffett's "margin of safety" was a pile of preferred paying 10%. The individual making the GS purchase now on this reasoning has no comparable kicker, seems to me.

No, when you take risk into account, I am right. I created a spreadsheet* to determine the compound annual growth rate that proves it. Assumptions are as given for BH's investment, and us purchasing at $75 today, and that the dividend remains at $1.40 a year (which I consider somewhat doubtful as I expect it to be reduced in one or two quarters from now).

In 5 years, if GS is 65, BH earns a CAGR of about 10%, you earn a CAGR of -0.85%.
If at 75, BH 10%, you 1.87%.
If at 85, BH at 10%, you at 4.31%.
If at 95, BH at 10%, you at 6.54%

The stock needs to reach 115 before you outpace BH at 10%, you at 10.51%. But if GS shoots up to 175, BH earns 17.37% while you earn more at 19.83%, but at what risk? In order to earn that extra 2.46% a year, you had to accept the entire downside risk (during a worldwide credit crisis, a deep recession, a company changing from a highly leveraged investment house to less leveraged bank, and a generally dismal business environment). Meanwhile BH has only one downside risk - that GS closes down before returning the $5 billion it borrowed.

* If you want a copy of the spreadsheet, just email me (before I delete it).
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