Follow the BIG MONEY!!!
How should you play the Credit Crunch?
Follow the BIG MONEY!
When I talk about BIG MONEY, what am I talking about?
Two men.
Warren Buffet and Wilbur Ross.
Everyone knows who Warren Buffet is. Mr. Buffet is the 2nd richest person in the US behind Bill Gates and the 3rd richest in the world behind Gates and Mexican entrepreneur, Carlos Slim.
Wilbur Ross may not be on your radar. Mr. Ross is a multi-billionaire investment banker who specializes in bankrupt and distressed securities. If he were a real estate investor, he would be the equivalent of a foreclosure and preforeclosure guru investor. Mr. Ross made his fortune buying steel, mining, and auto parts companies that were either in or facing bankruptcy, replacing management, and turning the companies around.
What are these two guys doing with banks and mortgage companies during the credit crunch/crisis?
For starters, Warren Buffet, through his company Berkshire Hathaway, is buying significant chunks of companies like Bank of America and Countrywide that have the bankroll to hold off the worst and then rebound when the market recovers. In the case of Countrywide, Mr. Buffet also used his influence with Bank of America to buy Countrywide convertible preferred stocks.
What is convertible preferred stock?
Convertible preferred stock are stock that pay dividends, have no voting power, but the owner can convert the preferred stock to common stock at any time. This means that once Countrywide rebounds, Mr. Buffet can convert to common stock and collect a huge capital gain. This particular deal pays a 7.25% dividend and allows the holder of stock to convert to common at an $18/share cost basis.
Wilbur Ross takes a much riskier, but much higher collateralized position on his subprime investments. Mr. Ross typically buys the debt of his target investments. Why? Because when these companies go into bankruptcy, all power shifts away from the stockholders and into the hands of the debt holders. When this happens, Mr. Ross typically organizes the rest of the debt holders, goes to the bankruptcy court, and becomes the new owner of the company. He then either brings in a new management team to turn the company around, or begins selling off pieces of the company, keeping the juiciest pieces for himself. In the subprime situation, Mr. Ross isn't even buying the debt of companies such as American Home Mortgage. Instead, he is buying their mortgage assets directly. In doing this, he is buying their most valuable assets, which are the only assets that AHM has that are worth anything, so that AHM can pay off its creditors as well as it can before silently disappearing. The advantage to Mr. Ross is that he is shortcutting the bankruptcy proceedings all together and getting the ASSETS that he wants in the process.
This situation is happening every day for us as real estate investors today.
I recently had a discussion with one of my realtors. He was telling me that he is being shown REO packages and packages directly from the mortgage banks ranging from several properties worth $500,000 to $2,000,000 in total all the way up to packages of properties worth $1 Billion in total. These packages are being divvied up and offered to individual investors at 30, 40, 50, 60 cents on the dollar. You should be calling to real estate agent to find out if he has access to them. If not, you should be calling other agents so that you can create your own fortune and get your piece of what Warren Buffet and Wilbur Ross are already enjoying!
Notes from the Underground:
Dow - 13,161.99 +174.77
Gold - 804.20 -1.60
Silver - 14.55 -0.16
Oil - 91.19 -3.43
Until Tomorrow,
Patrick
PS I have properties available on a regular basis for real estate investors. For a list of properties, go to www.CheapAssRealEstate.com and register for your password and put down my name as your referral.
Follow the BIG MONEY!
When I talk about BIG MONEY, what am I talking about?
Two men.
Warren Buffet and Wilbur Ross.
Everyone knows who Warren Buffet is. Mr. Buffet is the 2nd richest person in the US behind Bill Gates and the 3rd richest in the world behind Gates and Mexican entrepreneur, Carlos Slim.
Wilbur Ross may not be on your radar. Mr. Ross is a multi-billionaire investment banker who specializes in bankrupt and distressed securities. If he were a real estate investor, he would be the equivalent of a foreclosure and preforeclosure guru investor. Mr. Ross made his fortune buying steel, mining, and auto parts companies that were either in or facing bankruptcy, replacing management, and turning the companies around.
What are these two guys doing with banks and mortgage companies during the credit crunch/crisis?
For starters, Warren Buffet, through his company Berkshire Hathaway, is buying significant chunks of companies like Bank of America and Countrywide that have the bankroll to hold off the worst and then rebound when the market recovers. In the case of Countrywide, Mr. Buffet also used his influence with Bank of America to buy Countrywide convertible preferred stocks.
What is convertible preferred stock?
Convertible preferred stock are stock that pay dividends, have no voting power, but the owner can convert the preferred stock to common stock at any time. This means that once Countrywide rebounds, Mr. Buffet can convert to common stock and collect a huge capital gain. This particular deal pays a 7.25% dividend and allows the holder of stock to convert to common at an $18/share cost basis.
Wilbur Ross takes a much riskier, but much higher collateralized position on his subprime investments. Mr. Ross typically buys the debt of his target investments. Why? Because when these companies go into bankruptcy, all power shifts away from the stockholders and into the hands of the debt holders. When this happens, Mr. Ross typically organizes the rest of the debt holders, goes to the bankruptcy court, and becomes the new owner of the company. He then either brings in a new management team to turn the company around, or begins selling off pieces of the company, keeping the juiciest pieces for himself. In the subprime situation, Mr. Ross isn't even buying the debt of companies such as American Home Mortgage. Instead, he is buying their mortgage assets directly. In doing this, he is buying their most valuable assets, which are the only assets that AHM has that are worth anything, so that AHM can pay off its creditors as well as it can before silently disappearing. The advantage to Mr. Ross is that he is shortcutting the bankruptcy proceedings all together and getting the ASSETS that he wants in the process.
This situation is happening every day for us as real estate investors today.
I recently had a discussion with one of my realtors. He was telling me that he is being shown REO packages and packages directly from the mortgage banks ranging from several properties worth $500,000 to $2,000,000 in total all the way up to packages of properties worth $1 Billion in total. These packages are being divvied up and offered to individual investors at 30, 40, 50, 60 cents on the dollar. You should be calling to real estate agent to find out if he has access to them. If not, you should be calling other agents so that you can create your own fortune and get your piece of what Warren Buffet and Wilbur Ross are already enjoying!
Notes from the Underground:
Dow - 13,161.99 +174.77
Gold - 804.20 -1.60
Silver - 14.55 -0.16
Oil - 91.19 -3.43
Until Tomorrow,
Patrick
PS I have properties available on a regular basis for real estate investors. For a list of properties, go to www.CheapAssRealEstate.com and register for your password and put down my name as your referral.
Labels: Bonds, Credit Crunch, Investing, Stocks, Warren Buffet, Wilbur Ross
posted by Dusan at
6:41 AM
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