Buffett rationalized his investment at the time by looking at the historical trends of the market and, most importantly, the historical performance of Goldman Sachs stock. Despite the drop in the stock market, as well as the failure of several other major financial institutions, Buffett saw that the market was beginning to recover with the large cash infusions (bailouts) from the government. Due to this, Buffett saw an opportunity to capitalize on the low value of Goldman’s shares and decided to purchase. From his viewpoint, the purchase of Goldman shares was a great investment because he was getting the shares of a company who over the previous two years was trading at over $200 a share for only $115. For Goldman, this offer allowed them to not only remain afloat with the added influx of cash, but also showed investors that Warren Buffett was placing confidence in the success of Goldman.
Preferred share dividends get treated differently than other fixed payment investments such as bonds. Many preferred share dividends get taxed at a lower rate than common shares or normal income. Each preferred share issue has a prospectus that details the tax structure so that the investor can see the taxable nature of his/her investment. In terms of priority, the dividends of those with preferred shares are always paid out before the dividends of common shares.
Warren Buffett’s primary concern in 2008 was that Goldman Sachs would end up like Lehman Brothers and other failing financial institutions, thereby leading to a domino effect of other institutions failing. This was also due to his concern that the United States government was not going to step in and save other companies that were failing after they allowed Lehman to collapse. This fear was quickly quelled after Buffett spoke with then acting President George W. Bush, who basically explained to Buffett that the US government would in fact take action and “bail out” companies that were failing in order to...