Warren Buffett’s Top Plays: #14 Salomon Brothers

Buffett invested in Salomon Brothers, an investment bank, in 1987 by purchasing $700 million worth of 9% preferred stock with the option of conversion to common stock. He later invested an additional $300 million in the common stock, representing 22% of his net worth. Despite the unpredictable nature of the investment banking industry, the investment turned out to be successful, yielding a return of 150% including preferred dividends. In 1991, Buffett had to step in as interim chairman to save the company from bankruptcy due to illegal bidding practices by a managing director. He jokingly referred to his role as CEO for ten months as his sentence. The lesson from this investment is to stay within one’s circle of competence.