The media is making too much of Warren Buffett’s $5bn investment in Goldman Sachs, with a particularly silly headline at the Financial Post: Buffett bets on Wall St. revival.

The key thing to understand is that Buffett is not buying common stock. He is investing in preferred stock — preferred stock that yields 10%. And to sweeten the deal they’ve thrown in some in-the-money warrants with a five-year life — worth at least US$1bn at current levels.

For those of you who have forgotten your Accounting 101, it’s common equity that absorbs losses first. Goldman’s share price would have to go to zero before Buffett loses a single penny on a preferred stock investment. So Buffett is not so much betting on a “revival for Wall Street” as he is betting on the fact that Goldman will have enough common equity (or be able to raise it going forward) to protect Buffett’s preferred stock investment.

If Buffett was so bullish on the market, methinks he’d be buying the common.