Why Warren Buffett invested in Goldman Sachs?

 

When Warren Buffett's Berkshire Hathaway invested $5 billion in Goldman Sachs, it came as a major surprise.

Since the billionaire's massive investment comes at a time when the United States has been rocked by its worst financial crises and the country is still debating whether the $700 billion bailout plan should be cleared or not, it has set tongues wagging.

Was Buffett making a mistake? Should he have waited till a final decision on the bailout plan was taken?

On September 24, Goldman Sachs announced that it had reached an agreement to sell $5 billion of perpetual preferred stock to Berkshire Hathaway in a private offering. The preferred stock has a dividend of 10% and is callable at any time at a 10%premium. Berkshire will also receive warrants to purchase $5 billion of common stock with a strike price of $115 per share, which are exercisable at any time for a five-year term.

So, why would the world's greatest investor invest in Goldman Sachs, given that the other investment banking giants on the Wall Street have bitten the dust and fallen by the wayside