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Nov.12

7:07 PM ET

Wednesday, 12 Nov 2008

Berkshire Hathaway Shares Fall to Lowest Close In Two Years

Posted By:Alex Crippen

Topics:Stock Market | Warren Buffett

Companies:General Electric | Goldman Sachs Group Inc | Berkshire Hathaway Inc.

Berkshire Hathaway shares close Wednesday at two-year low.
Shares of Warren Buffett's Berkshire Hathaway have closed at a two-year low.

The Class A stock fell 3.2 percent to finish the day (Wednesday) at $103,333 each. It's the lowest closing price since October 27, 2006.

Berkshire is down 30.7 percent from its all-time closing high of $149,200 on December 10 of last year. It's gone as high as $151,650 in intraday trading.

Berkshire has dropped 27.0 percent year-to-date, outperforming the benchmark S&P 500's 42.0 percent plunge.

CNBC's David Faber reports that Friday's earnings numbers from Berkshire have prompted some Wall Street investors to bet against Warren Buffett and his stock. Here's what David had to say this morning on CNBC's Squawk on the Street:

"It's never paid to bet against Warren Buffett, has it? Never, really, over any length of time in Berkshire Hathaway.

But interesting, the last few days, I've picked up some chatter, and actually some investors out there that are shorting Berkshire in part because of the report that was out Friday, the earnings report from Berkshire Hathaway, and some things they picked up in the 10-Q (filing with the SEC.)

One of the main things being that, well here it is, you can read it yourself.

'Based on (equity and) equity index prices as of October 31st (2008) applied to Berkshire's investment holdings and its equity index put option contracts, Berkshire estimates (that) consolidated shareholders' equity would decline by approximately nine billion dollars.'

What does that actually mean? Well, what it means is that Berkshire, which has a tangible book value of about 86 billion dollars, took that down by about nine billion. Why? Well, because it had a 40 billion dollar short index put position on. What does that mean? That means, actually, that he was betting on the market going up. Bullish, was Mr. Buffett on the market. You're short equity index puts, you are long, and so far, wrong.

That has come down to about, I guess we'd call in the current quarter, what, 37 billion, I think, is the notional value.

Now, by the way, Berkshire does not have to put up any collateral against that. Doesn't qualify as hedges, it's not reported in that sense. So, there is no need to put up collateral against that. That's important. But nonetheless, it's not a great position right now to be in.

Now, of course, others are also pointing to (Buffett's investments in) GE and Goldman Sachs saying, 'Hey look, he came in way early there, too. (See WSJ to Warren Buffett: Time to Get a New Crystal Ball.)

Here's a look at GE. (Stock chart price: $17.29) That just causes pain throughout this building and many others, doesn't it. Of course, Warren bought stock higher, not that much higher. What was it? 22?

Go to Berkshire Hathaway Portfolio Tracker
And Goldman Sachs, it was, ah, well, he's getting paid 10 percent, don't forget. Ten percent a year on the preferred. The warrants were 115 on Goldman Sachs. (Stock chart price: $71.88)

So, we'll see, over time. Of course, Berkshire has always proved to be a stock to own. But interesting to note that there are some out there betting against Warren, at least for the short term, in part based on that, so far, not great market call."

That's David's report. My own reminders: those stock puts are extremely long-term bets, and will only wind up losing money if stocks stay depressed well into the next decade. And his investments in GE and Goldman involve preferred shares that pay 10 percent a year. Berkshire also got warrants to buy GE and Goldman common stock at prices above there they're trading now. But if the warrants weren't exercised, and there's no reason to think they were, then Buffett hasn't 'lost' any money on them. If the stocks recover anytime in the next five years, they could eventually prove profitable.

Current Berkshire stock prices:

Class A: [US;BRK.A Loading... () ]