Bloomberg: Warren Buffet's Berkshire Drops to Lowest in 5 Years
Published 02.23.2009 11:40 GMT
I wonder if Warren thought the tide would take his boat out as well? I thought it was bad in November when Mr. Buffet quickly lost a few Billion in Goldman [Nov 11: Goldman Sachs (GS) - Beaten, Bloody - Warren Buffet Down $2 Billion] but with what his holdings are doing lately - it's starting to get mighty serious. What's amazing is Buffet railed against the use of derivatives and now has one huge bet out there using them (granted it's quite an low probability event he is betting against but still...)
As an aside, I've proposed to some people how much of a profit opportunity it has been to SHORT the equity of any stock Warren buys the bonds of - he takes very onerous terms [Sep 23: Warren Buffet Finally Decides to Start Buying Distressed Assets] [Feb 3: Buffet Provides Financing to Harley Davidson]. Thus far it's been a winning bet - in spades.
Via Bloomberg:
•Warren Buffett’s Berkshire Hathaway Inc. fell to its lowest price in five years in New York trading amid concern about possible losses on bets the billionaire chairman has taken on world stock markets.
•Berkshire Class A shares, the most expensive on the New York Stock Exchange, slipped $1,600, or 2 percent, to $77,000 at 4:01 p.m. in composite trading, the lowest since October 2003. The stock of the Omaha, Nebraska-based firm has declined for six straight days and plunged 46 percent in the past 12 months, compared with the 43 percent drop of the Standard & Poor’s 500 Index.
•The bets, in the form of derivatives that may require Berkshire to pay as much as $37 billion, require the firm to take writedowns in quarters where stock markets fall and volatility increases, even though Berkshire wouldn’t pay out on the contracts until at least 2019. (that's "mark to market" instead of "mark to model" which all the country's largest banks are begging for) Four of the world’s stock markets would have to drop to zero for Berkshire to pay the maximum amount to the firms that took the opposite side.
•Berkshire recorded a $1.26 billion pretax loss on its long-term derivative contracts in the third quarter because the value of the markets the contracts are tied to declined.
•‘It’s possible there could be a big writedown when they report those fourth-quarter numbers,” said Bill Bergman, an analyst with Morningstar Inc. who gives Berkshire five stars, his firm’s highest rating. “There’s clearly some concern out there, but it still seems like a fairly conservative position.”
•Most of the top holdings in Berkshire’s U.S. stock portfolio, valued at $51.9 billion as of Dec. 31, declined this year. Coca-Cola Co., Berkshire’s top holding, dropped about 5.4 percent since Dec 31. Wells Fargo & Co. lost 63 percent. American Express Co. plunged 30 percent. (keep in mind this is not over a 1 year period, this is since Jan 1, 2009!)
•The quarter ended Sept. 30 marked Berkshire’s fourth straight profit drop, the longest streak of quarterly declines in more than a decade. Slumps in debt and equity markets reduced shareholders equity, a measure of assets minus liabilities, by $9 billion in October, after the quarter ended, Buffett said in November.
•Buffett is negotiating private deals to shore up companies that have fewer alternative sources of capital amid the global credit crunch. Berkshire agreed in the past six months to purchase $8 billion in preferred shares of General Electric Co. and Goldman Sachs Group Inc. Buffett also made deals to buy debt of wallboard manufacturer USG Corp., motorcycle-maker Harley-Davidson Inc., luxury jeweler Tiffany & Co. and Sealed Air Corp., the maker of Bubble Wrap shipping products. The yields are as high as 15 percent.
•Berkshire cut its stake of Johnson & Johnson (JNJ), the world’s largest maker of health-care products, by half in the fourth quarter and also sold shares of Procter & Gamble Co. (PG) and U.S. Bancorp (USB) as equity markets plunged.
•He told an interviewer in November that Berkshire’s declining stock price “doesn’t make any difference” to him. “You own a business,” Buffett said of shareholders in an interview with the Fox Business Network. “If I own a farm here, which I do, I don’t get a quote on it every day, you know? And it may have gone down 50 percent at some point. I don’t even know about it. I look to the farm and I look to the business to determine the results.”
