It Might Take "Forever" For Buffett to Win On This One

Even legends make mistakes. Legendary value investor Warren Buffett is no exception. The Oracle of Omaha was, by his own admission, lucky to eke a out profit in an old investment in US Airways LCC. He purchased shares of ConocoPhillips COP when oil was trading at record highs and is underwater on what is a relatively small part of Berkshire Hathaway's BRK BRK-B) equity portfolio. Those are just two examples, but the real stinker for Buffett these days is clearly Bank of America BAC. With about 20 minutes to go in the trading day, Dow component BofA is trading below $5, a place the shares have not been in since early 2009. As the Wall Street Journal notes, Buffett is now $1.5 billion underwater on his sweetheart BofA investment that was announced earlier this summer. Put another way, $1.5 billion is nearly double the market cap of Patriot Coal PCX. Or based on the $300 million in dividends that Berkshie gets to collect per year from BofA, if the stock didn't move at all, it would still take five years for those dividends to help Berkshire break-even. By the way, ordinary BofA shareholders are treated to a dividend of just 4 cents a share per year. So if you want to collect $300 million per year in income from the downtrodden bank like Buffett gets to, you'd have to buy something along the lines of 750 million shares. Buffett has warrants to buy 700 million BofA shares at $7.14 a share, so even at $5, the stock would need to rise more than 40% for those warrants to be in the money. And so much for diversifying a portfolio. Berkshire's equity stakes include eight stocks that can be considered pure play financials and that EXCLUDES BofA and General Electric GE, which derives a substantial chunk of its revenue from financial services. Good thing Buffett's preferred holding period is "forever," as he has said in the past, because it might take that long for BofA to turn into a profitable trade for him.