A second financial investment was $5 billion of preferred stock in Bank of America (BAC) that came with warrants allowing Berkshire to buy 700 million common shares at $7.14 per share anytime before September 2, 2021. Bank of America stock is currently selling at about $8 per share. Says Buffett of this investment: "Our warrants will likely be of great value before they expire."
Of the third Berkshire investment, Buffett has absolutely nothing good to say. In his letter, he concedes that he completely blew things a few years ago by putting around $2 billion into several high-yield bond issues of utility operation Energy Future Holdings (which in its former life, before it was taken private by KKR and others, was called TXU). Had the price of natural gas risen and given EFH an opportunity to make good money off its coal-burning plants, the company's bonds would have been golden. Instead, the price of natural gas has nosedived and turned EFH into a financial disaster.
Berkshire wrote down its EFH investment by $1 billion in 2010 and by another $390 million in 2011. Buffett is blunt in assessing his judgment in this matter: "However things turn out, I totally miscalculated the gain/loss probabilities when I purchased the bonds. In tennis parlance, this was a major unforced error by your chairman."
The writer of this article, FORTUNE senior editor-at-large Carol Loomis, is a longtime friend of Warren Buffett's and a shareholder of Berkshire Hathaway. She has been the pro bono editor of Buffett's annual letter to shareholders for 35 years.
