Security Analysis: Goldman Sachs Harvard Case Solution & Analysis

Analysis of the portfolio
Warren Buffet’s investement porfolio has been analyzed in the above table.

Buffet’s Rationalization Technique

Buffet covered his capital by the assessment of the rising value of the warrants in the market.The difference between the priority of the prefered stocks over common stocks was that the prefered stocks were giving a higher dividend than the common stocks.In addition, the tax rate was declining and due to the higher interest rate and lower tax rates, the prefered stocks were more prefereable.

The another aspect for the treatment of prefered dividends was that the rate of return which was prefered was 10% whereas,the rate of tax was 4.5% which declined to 4.25%.Therefore,the person who was making profit on prefered stock was in more profits rather than common stocks as the return on common stocks was not confirmed while the rate was lower than the rate of the prefered stocks.

Warren buffet’s Strategic intentions and decisions

The noise was right that the company was meeting all day long and twice or everyday a week for the repayment plan of the warrants as the assets were insufficient to meet the requirement of paying back the warrants.The only reason that Buffet didn’t want the company to repay was because Buffet had invested $5 billion in these securities including the common stocks and warrants.If the company repays them, then the balance sheet of Buffet will loss a significant asset however, the profitability was high enough. Moreover, Buffet was able to recover the capital in 3 to 4 years.Also, the payback period was short as compared to other stocks and when he saw that he suggested the company to not to repay the warrants before and also try to increase their maturity since Buffet was making good profit from them.

While considering these factors,Buffet aslo realised that the prefered stocks are also giving a handsome rate of return, which was 10% while the value of warrants was inclining through which Buffet could also earn a high margin by selling them on market price.The price was inclined to 10%, hence making a significant increase in the book value of Buffet’s assets............................

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