Buffett's Berkshire Drops to Lowest in Five Years (Update1)

By Erik Holm
Bloomberg News
February 20, 2009

Feb. 20 (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, fell $3,200, or 4.1 percent, to $75,400 at 11:57 a.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 48 percent in the past 12 months.

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. 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.

"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." Berkshire may report fourth-quarter results next week.

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 4.8 percent since Dec 31. Wells Fargo & Co. plummeted 66 percent. American Express Co. plunged 32 percent.

Profit Slump

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 owns about one-third of Berkshire's Class A shares and about 14 percent of the Class B stock, which is 1/30th of a Class A share, according to Bloomberg data.

Buffett, ranked the richest man in the U.S. by Forbes magazine, transformed Berkshire from a failing textile maker into an enterprise with businesses ranging from ice cream and underwear to corporate jet leasing. He has never split the stock.

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."

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