This month in (financial) history.
In October 2008, Warren Buffett announced Berkshire Hathaway would invest $3 billion in General Electric. GE had got itself into trouble, as loans within its GE Capital arm began to default. Buffett bailed them out, but on his terms. The $3 billion was issued in preferred shares of GE. They yielded 10%. They also came with an option to buy 135 million GE shares at any time in the next five years for $22.25 each — close to its stock price at the time.
Like his $5 billion investment in US bank Goldman Sachs a week earlier, Buffett’s timing would prove early. Shares in GE would fall to $7 by March 2009. However, Buffett was patient, and the deal would ultimately net Berkshire roughly $1.7 billion in profits. Berkshire received $3.3 billion when GE redeemed its preferred stock in October 2011, as well as $900 million in income in the intervening three years. Buffett negotiated to vary the share option in 2013, to allow Berkshire to exercise them without spending any cash. It received 10.7 million shares as a result. Berkshire finally sold their GE shares in August 2017. Between the preference share premium, the income, and the proceeds from the share sales, Berkshire achieved about a 50% return.
At Berkshire’s annual meeting in 2018, Buffett revealed that he could have driven a harder bargain.
“They were going to take the terms we offered.” he said, “But we actually didn’t push it to the limit because there really wasn’t anybody else around.”
Vaguely interesting facts.
- Elvis Presley’s manager sold “I Hate Elvis” badges as a way to make money off people who weren’t buying his merchandise.
- According to a study, most dogs reach peak cuteness between six and eight weeks old. Who pays for these studies?
- After passing a kidney stone in 2006, William Shatner sold it for $25,000. Shatner donated the money to a charity.
- The medical term for ice cream headaches is sphenopalatine ganglioneuralgia.
- Earmuffs were invented in 1873. By a 15-year-old. *
Source: mentalfloss.com, wikipedia.com
* Chester Greenwood was the 15 year old inventor of the earmuffs. He came up with the idea after his ears became frostbitten while ice skating. At first, Chester’s friends made fun of his strange ear protectors. But they soon realized that they worked, and it wasn’t long before almost everybody was wearing them.
Chester continued to improve the design. Within 10 years, he had built a small factory near his home town of Farmington, which employed 11 workers. In 1883, they produced 50,000 pairs. After World War I broke out, Chester’s factory provided earmuffs to thousands of overseas troops. When he died in 1937, the plant was producing 400,000 pairs of earmuffs per year.
In the US state of Maine, the first day of winter is known as Chester Greenwood Day, in honour of the earmuff boy. In Chester’s home town of Farmington, they hold an annual “Earmuff Parade” in his honor.
And finally…
Investing is not for everybody.
