In June, financial advisor and CNBC contributor Dennis Gartman even called Buffett “an idiot.”

But now that Berkshire has rallied more than 35% from its March lows, the only idiots to be found are those that ever doubted the world’s second-richest man’s business savvy. Indeed, many of the moves Buffett made during last year’s market melee are paying off in a big way.

Take, for instance, his $5 billion investment in Goldman Sachs Group Inc. (NYSE: GS). Berkshire last September agreed to buy $5 billion in perpetual preferred Goldman shares that pay 10% interest.  In addition, Berkshire received warrants giving it the right to buy $5 billion worth of Goldman’s common shares at any time over the next five years at a price of $115 per share.

Critics lampooned that deal when shares of Goldman Sachs fell to a 52-week low of $47.41 in November. Since then, however, Goldman’s stock has rocketed more than 240% to close yesterday (Tuesday) at $160.25.

If Berkshire cashed in it’s warrants today, it would make a 40% profit or about $2 billion. But Warren Buffett has always been a long-term investor, which makes that highly unlikely.

“We will hold the warrants,” Buffett said on Fox Business Network. “Every instinct in my body tells me that we will want to hold those warrants until they’re very close to their expiration date. The preferred pays us the dividend and the warrants are going to make us the money.”

While Berkshire waits, the $5 billion in preferred Goldman shares pay an annual interest of $800 million in dividends.

Berkshire’s total stake in Goldman is now worth more than $9 billion – $4 billion more than the company paid for it – according to University of Louisiana finance professor Linus Wilson.

Berkshire’s investment in BYD Co. Ltd., a Chinese producer of both cars and specialized batteries, has also paid off.  Berkshire’s MidAmerican Energy Holdings Co. agreed last Sept. 26 – just three days after the Goldman deal was announced – pay roughly $230 million for a 9.89% stake in BYD. MidAmerican bought 225 million shares of BYD at a HK$8 a piece. Those shares have since risen 430% to close yesterday at HK$42.40, handing Buffett a paper profit of about $1 billion.

Berkshire reported second-quarter profit of $3.3 billion, up from $2.88 billion a year earlier. The boost was largely attributable to derivative gains, which soared to $2.36 billion from $689 million the year prior.

Berkshire’s book value rose 11.4% in the second quarter, to $73,806 a share, and Barron’s estimates that it already could have increased since to around $79,000 now.

What Buffett’s Buying

So if Buffett’s supposedly cold hand has suddenly turned hot, how can investors benefit? Simple: By following the leader.

A 2007 study by two university professors titled “Imitation is the Sincerest Form of Flattery” showed that buying what Buffett has bought – even a month after his purchases – is a pathway to superior returns.

“The market … appears to under-react to the news of a Berkshire stock investment since a hypothetical portfolio that mimics Berkshire’s investments created the month after they are publicly disclosed earns positive abnormal returns of 14.26% per year,” the study said.

And according to a regulatory filing disclosed Aug. 14, Berkshire is reading the tealeaves on healthcare reform. As of June 30, the company had loaded up 1.2 million shares of Becton Dickinson & Co. (NYSE: BDX), a maker of such medical equipment as scalpels, catheters and syringes, while winding down its positions in healthcare insurers. Berkshire cut its holdings in WellPoint Inc. (NYSE: WLP) by 27% to 3.5 million shares and sold 3.4 million shares, or 24%, of its UnitedHealth Group Inc. (NYSE: UNH) stock.

“If the government is going to open health care to more people, demand for health care supplies would increase,” Gerald Martin, a finance professor at American University’s Kogod School of Business told Bloomberg. “The plan that’s going through Congress could be a real negative to the health insurers, but the people who provide the supplies could really benefit.”

Berkshire also increased its holdings in Johnson & Johnson (NYSE: JNJ), the world’s largest maker of health-care products, by 14% to 36.9 million shares. The purchase of J&J shares marks the second straight increase in the size of Berkshire’s stake, according to Bloomberg.

All of the biggest holdings listed in Berkshire’s filing gained in value in the second quarter. American Express Co. (NYSE: AXP) rose 71% in the period, Wells Fargo & Co. (NYSE: WFC) rose 70%, and Burlington Northern Santa Fe Corp. (NYSE: BNI) jumped 22%. Berkshire’s single largest holding, The Coca-Cola Co. (NYSE: KO), rose 9.2% in the three months ended June 30.

Source: Berkshire’s Back, So What’s Warren Buffett Buying Now?

MidAmerican is 87.4% owned by Buffett’s Berkshire Hathaway Inc. (BRK.A, BRK.B), which just last week paid $5 billion for a stake in Goldman Sachs Group Inc. (GS). Buffett’s vote of confidence for Goldman was enough to lure skeptical investors back into the treacherous financial services sector and boosted Goldman Sachs’ shares by nearly 10% over the two days following the announcement.

Similarly, shares of BYD (Build Your Dreams) shot up 42% in Hong Kong Monday following MidAmerican’s decision. BYD’s stock had tumbled 56% since hitting its 52-week high last October.

The purchase also marks Buffett’s first large investment in China following the sale of Berkshire’s stake in PetroChina Co. Ltd. (ADR: PTR) last year. After cautioning investors against the Chinese stock market at a time when it was just beginning to peak, Berkshire sold 28 million shares of PetroChina, netting a profit of about $3.5 billion from what had been a $500 million investment in 2003. PetroChina has lost roughly half its market value since Buffet divested Berkshire’s stake.

Buffett now appears ready to test the fast-growing Chinese market again, and a stake in BYD opens up brand new opportunities for MidAmerican, a diversified energy-products company, and for BYD, a builder of electric cars that has some ambitious objectives.

The global auto industry is just one worldwide business sector pushing to capitalize on China’s tremendous long-term promise. China’s auto market is expected to advance at an 18% clip this year. The U.S. auto market is in the midst of an 11-month slump, its longest since a 14-month slump that took place in 1991. New car sales are expected to fall 17% this year, Bloomberg News reported.

The Shenzhen-based BYD is actually a battery manufacturer that plans to advance its business by selling plug-in electric cars in China by the end of this year. It intends to import those cars into the U.S. market by 2010.

BYD’s lithium-iron phosphate batteries give the company’s F6DM, or Dual Mode, mid-sized sedan the ability to travel 62 miles in all-electric mode before traveling an additional 205 miles on gas power. BYD’s F3DM, a smaller and less expensive model, reportedly has a 100-mile range in electric-only mode. By comparison, the recently unveiled General Motors Corp. (GM) Chevrolet Volt can go only about 40 miles before it needs the gasoline engine.

MidAmerican Chairman David Sokol told The New York Times that his company was impressed by BYD’s ability to produce electric cars that have a range of almost 190 miles on a single charge, and can be 80% recharged in just 15 minutes.

Sokol also pointed out that plug-in electric cars may be more adaptable to the United States market than cars that run on hydrogen or ethanol because there is already existing infrastructure to supply electricity for recharging almost anywhere, whereas hydrogen or ethanol stations and supply routes would have to be established across the country.

“We can drop these charging stations anywhere,” Sokol told BusinessWeek. “If you want a rapid charging one in your garage it will cost between $2,500 and $3,000 to install.”

The annual energy cost to run a BYD-made electric car, based on 12,000 miles of driving per year, would be about $400, Sokol said. That compares to $2,400 for a traditional gas-powered car with fuel priced at $4 per gallon. Also, the energy consumed by an electric car in the U.S., assuming the national average of 51% of power supplied by coal, would produce half as much carbon dioxide as a gas-powered automobile.

BYD sold 85,104 cars in the first eight months of the year, a 35% increase from 2007. The company, which is widely known as a leading producer of cell-phone batteries, estimates that auto sales will make up 30% of its 2008 revenue, up slightly from 25% in 2007. And with Buffett’s help, BYD may see even faster growth, as the Berkshire name brings newfound credibility to a relatively unknown carmaker.

“Warren Buffett is very well respected globally as well as in China, so as an investor he will help us build our brand,” BYD Chairman and Chief Executive Officer Wang Chuanfu told BusinessWeek.

Wang also said that Buffett’s involvement could accelerate the BYD’s transition to the U.S. market, and noted that MidAmerican Energy could be a big part of his company’s future plans.

“Developing our electric vehicles requires a lot of energy, which MidAmerican Energy can supply us in the future,” Wang said.

Michael Dunne, managing director of J.D. Power China, recently called the tie-up the “most exciting news in China’s auto history.”

Berkshire is a “formidable investor, which brings confidence to the picture,” Dunne said. “BYD can say ‘Yeah we can do this.’”

Source: Berkshire Stake Brings Confidence and Credibility to Top China Electric Carmaker BYD