Billionaire investor Warren Buffett has earned more than $10 billion – and counting – from lending cash to blue-chip companies during the global financial crisis, reported the Wall Street Journal on Monday, highlighting the potential profits a strategic investor can make even as others race for the exits.
Through his company, Berkshire Hathaway Buffett extended credit lifelines of nearly $26 billion to companies such as Mars, Goldman Sachs, General Electric, Swiss, Dow Chemical and Bank of America from 2008 through 2011, giving him a pre-tax return of investment of nearly 40 percent by 2013.
"In terms of simple profitability, an average investor could have done just as well investing in the stock market if they bought during the panic period," Buffett said in an interview on Saturday. "You make your best buys when people are overwhelmingly fearful."
Taking advantage of the general atmosphere of panic, Berkshire Hathaway were able to use its "gigantic cash hoard to move swiftly and exact lucrative terms that created a stream of payments from the borrowers," added WSJ.
The first deal, which Buffett had made was to contribute $6.5 billion for candy maker Mars to finance a $23 billion purchase of Wrigley. Thus far, the investment is expected to net Berkshire nearly $4 billion, including annual dividends and a prepayment premium since the bonds were due in 2018.
Additionally, Buffett put in $5 billion in Goldman Sachs shortly after Lehman Brothers had collapsed – an investment that reaped his company $5.64 billion in 2011, with a $500 million bonus for Buffett; while last week, Buffett exercised the option on 13.1 million common shares for a value of about $2.07 billion.
“In addition to much-needed capital, the companies acquired something equally valuable: Mr. Buffett's implicit endorsement of their long-term prospects. Shares of these companies generally went up after they revealed Berkshire's involvement,” the WSJ noted.
Buffett told WSJ that he hopes to use the cash to make other big investments soon that will bring equally attractive returns. Berkshire will continue to buy stocks to add to its portfolio of over $100 billion, because "it's still better to have equities than cash," he said.
Comparatively, the U.S. government invested about $420 billion through its Troubled Asset Relief Program during the same period. Their return on investment thus far is around 12 percent, or $50 billion, according to the U.S. Treasury's website.