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http://online.wsj.com/article/SB114359920004310780.html?mod=home_whats_news_us (registration required)


Seitel, which makes software which allows the user to track seismic tremors and other data for the oil industry and other businesses,was bankrupt. Berkshire bought the bonds, and offered 40 cents per share for the common. The hedgie, whose fund owned 9.9% of the common, came up with a complex alternative plan, and it was adopted by the shareholders.

Berkshire apparently made 52% on the bonds. The hedgie made 7 times his money, and the stock now sells for $3.18.

Bottom line: Here's just another deal that WEB made lots of money for shareholders. Even when he's wrong, he's right.
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"Even when he's wrong, he's right."

Actually, I'd argue that Buffett was clearly not wrong here, getting a 52% return and being higher up on the capital structure. The fact that the hedge fund made so much money is evidence that Berkshire correctly estimated the bonds to be low risk. We'll never know, but it's possible that Berkshire was compensated better for the risk it assumed than the hedge fund.

DeliLama
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"Even when he's wrong, he's right."

DeliLama:

Actually, I'd argue that Buffett was clearly not wrong here, getting a 52% return and being higher up on the capital structure. The fact that the hedge fund made so much money is evidence that Berkshire correctly estimated the bonds to be low risk. We'll never know, but it's possible that Berkshire was compensated better for the risk it assumed than the hedge fund.


I was just kidding about WEB being "wrong." What's funny is how hard the WSJ worked to make a big deal about someone "besting" WEB. I think both parties got what they wanted here, and I think WEB is always working on the shareholders' behalf.

thehynie
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Not to mention that one can only wonder what the results would be without a seven bagger.

Mr. Harley's gamble on a distressed company gave a big boost to his fund, whose past performance has been a bit choppy: Last year, the fund returned 1.48% after gaining 23.36% in 2004 and 6.27% in 2003, according to hedge-fund performance tracker Greenwich-Van Advisors LLC, for an average annual return of about 13% over that period. Mr. Harley chalks his ups and downs to the fund's "event-driven" strategy.

BTW, anyone has a phone number for the duo WSJ/Van Advisors to calculate my annual returns (an extra few percentage points always comes in handy)?
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