Within hours of revealing his dramatic, confidence-boosting investment in Goldman Sachs yesterday, Warren Buffett had made a $783 million (£424 million) notional profit.

The Wall Street investment bank astounded its rivals by raising $10 billion in fresh capital — $5 billion from Berkshire Hathaway, Mr Buffett’s main listed company, and $5 billion through a public share offering. Shares in Goldman rose 6 per cent to $133.00, giving Berkshire an instant theoretical profit on a side deal, under which it has warrants to buy up to $5 billion of new Goldman shares at $115 a share at any time in the next five years.

Analysts said that the decision by Mr Buffett, widely regarded as one of the world’s most astute long-term investors, to take the plunge in financial stocks — having passed on previous capital-raisings by banks — might come to be seen as the turning point in the financial crisis.

In a separate public offering, Goldman raised $5 billion through the issue of new shares at $123 a share.

The Berkshire deal appears to have derailed an alternative capital-raising plan, under which Sumitomo Mitsui Financial Group, the Japanese bank, would have sunk $2.5 billion in Goldman.

Berkshire wrested attractive terms from Goldman. The perpetual preference shares will pay out an interest rate of 10 per cent. Goldman can call these in at any time, but has to pay a 10 per cent penalty to Berkshire.

Mr Buffett has a relationship with Goldman going back to 1940, when, aged 10, he was taken by his father, a stockbroker, to meet Sidney Weinberg, the senior Goldman partner of the day.

Mr Buffett has had an uneasy relationship with Wall Street, mistrusting its analysts and deriding its short-term ethos, while occasionally investing in it. “Goldman Sachs is an exceptional institution,” he explained yesterday. “It has an unrivalled global franchise, a proven and deep management team and the intellectual and financial capital to continue its track record of outperformance.”

Until now, Berkshire, which has about $50 billion in cash available for investment, has resisted the blandishments of banks desperate for rescue capital, happy to see sovereign wealth funds and others take the plunge and, in many cases, lose money.

“We had a lot of cash and we are now seeing things that give us a chance to use that cash sensibly,” Mr Buffett told CNBC television.

Isabel Schauerte, an analyst with Celent, a consultancy in Boston, said: “Buffett’s actions should boost the mood on Wall Street. This is a win-win situation. It is a formidable deal for Buffett, as Goldman has taken a beating in the market lately. It is also a sound seal of approval for Goldman.”

Goldman regards the deal as a two-way bet, helping it whether Congress approves a $700 billion bank bailout plan or rejects it. If the plan is passed, the fresh equity gives Goldman the firepower to buy back distressed assets from the Government. If it is rejected, a financial panic could ensue, during which banks will need as much capital as possible.

Goldman shares were hammered last week after the Lehman Brothers bankruptcy. Goldman, with Morgan Stanley, abandoned its investment banking model to become a bank holding company supervised by the Federal Reserve and eligible to apply for Fed funding. Exercising the warrants would give Berkshire about 7 per cent of the newly enlarged Goldman.

Mitsui Sumitomo has been discussing an injection of about $1 billion into Goldman in exchange for a more modest stake.

A sage's guide to investment

Breaking his own rules?

— Learn from experience. On his previous investment in an investment bank, Salomon Brothers: “I felt like the drama critic who wrote: ‘I would have enjoyed the play except that I had an unfortunate seat. It faced the stage'”

— Be suspicious of the motives of people on Wall Street: “Wall Street is the only place that people ride to in a Rolls-Royce to get advice from those who take the subway”

— Don't be blinded by the past performance of a company. “The investor of today does not profit from yesterday's growth”

— Don't buy into industries whose future performance is difficult to forecast: “I look for businesses in which I think I can predict what they're going to look like in ten to fifteen years' time. Take Wrigley's chewing gum. I don't think the internet is going to change how people chew gum”

— Shun any business that is complex and hard to understand: “I want to be able to explain my mistakes. This means I do only the things I completely understand”

— Be suspicious of any deal that is widely applauded at the time: “You pay a very high price in the stock market for a cheery consensus”

Or abiding by them?

— Exploit freak conditions that lead to even great companies being marked down: “Great investment opportunities come around when excellent companies are surrounded by unusual circumstances that cause the stock to be misappraised”

— Buy when others are too terrified to: “I buy stocks when the lemmings are headed the other way”

— Harness the imperfections and inefficiencies of the stock market, which occasionally underprices assets dramatically: “I'd be a bum on the street with a tin cup if the markets were efficient”

— When you do take a bet, have the courage to do it with meaningful amounts of money: “I can spend money faster than Imelda Marcos when things are right”

— Buy good businesses at sensible prices: “Our method is very simple. We just try to buy businesses with good-to-superb underlying economics run by honest and able people and buy them at sensible prices. That's all I'm trying to do”

Money Central: the 10 best stock market investments ever

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