Post Warren Buffett’s investment in Goldman Sachs and GE, two articles in the past weeks caught my attention. The first article described in detail how the Oracle of Omaha made USD 783 mn on his Goldman investment based on the combination of the 10% preferred stock and the option to buy USD 5 bn worth of Goldman stock at USD 115 per share in the next 5 years. The second and the most recent article spoke about how the greatest value investor had his entire profit wiped off. Whilst the rising and falling prices do not affect long term investors such as Warren Buffet who do not look at the value of their portfolio daily they definitely do impact a large part of the financial community who do. The value of both an individual’s and an institution’s holdings are determined by and are subject to the vagaries of market. A portion of the share holder value has eroded due to expected business performance while the rest has eroded due to liquidity and credit crunch.
This raises some key issues which the US policymakers have also questioned. These questions revolve around the valuation techniques and the mark to market mechanism used by the accountants as required by the regulations and compliances. Is mark to market fair to the professional investors who do not have the luxury of “picking” and “holding”? Accounting has been conveniently blamed in the past – will it undergo a transformation this time too?
Tags: Fed, General Electric, Goldman Sachs, investment, mark to market, US accounting, value investing, Warren Buffett
