Monday, December 3, 2007

Buffett Stays Steady and Buys $2B in TXU Bonds

Buffett put $2 billion of Berkshire Hathaway's cash to work at the end of last week when the company purchased high-yielding bonds issued by Dallas-based power producer TXU Corp.

Berkshire bought into two issues by TXU. It purchased $1.1 billion of 10.25% bonds at 95 cents on the dollar to give Buffett an effective yield of 11.2%. And Berkshire bought $1 billion of 10.5% PIK-toggle bonds (bonds whose interest can be paid out in cash or more bonds) for 93 cents on the dollar, producing an effective yield of 11.8%.

See the full article here:


Anonymous said...

hi sham. you know a lot about buffet so you can maybe help me.i read that in 1965 buffett bought berkshire for 11 million dollars.where he made 11 mil? he started in 1950 with $10000, in 1956 he had $100 000 and if you read his letters to partners, there is no way that he in 1956-1965 period made 11 mil from 100 k. thats 10000 %help me out,sham!

Sham Gad said...

You are not considering the fact that Buffett also had new investors come in during the partnership years. So you have consider all the new capital that Buffett was able to invest. On of his earlier partners, Homer Dodge, gave Buffett some $300k at the time.

Then, if you consider Buffett's annual partnership returns of some 26% or so a year, that means the money doubles in a little less than three years. Buffett also ran the partnerships until 1969, so over a 13 year stretch the money was able to double just over four times.

Anonymous said...

ok, but steal it doesn't make much sense to me. he bought it with his own money, right? not partnership's money. he started partnership with his own $100( according to lowenstein) and other people invested 100k or more and during this 13 years new ones were coming. so in 1962. partnership had 7.2 mil. of which 1 mil belonged to buffett. where from? from fees? and in 1964. partnership had 22 million, and buffett 4m. in 1966 he was worth 6.8 and in 1967 10 million dollars.only explanation is that he earned his fortune in these days from fees.( 1/4 of anything over 6%)

Sham Gad said...

Buffett did not "own" Berkshire immediately when he folded his partnership. When he began buying shares, he gradually accumulated enough to become a board member and began changing the operating strategy somewhat. You don't need to accumulate 51% of shares to exert "control" type policies. In addition, several early Berskhire insiders were very fond of Warren, so they were obviously helpful.

Don't get too hung up on the specific nuances of how much money he had to have from his partnerships to do this. Surely, Buffett maintained personal accounts for himself. Before he started the partnerships, Buffett had already accumulate a net worth of over $150,000. I can assure these funds did not sit idle in saving accounts.