Berkshire Hathaway Inc. (NYSE: BRK.A) stock fell 12% on Wednesday -- dropping by $11,550 in one day. The stock has not fallen this much on a percentage basis since the 1987 crash. (It fell 18.51% on October 19, 1987 -- down $720 that day to $3170.) Last month, Warren Buffett was advising Americans to back up the truck and buy stock. Since then, Berkshire has lost 30% of its value and the S&P 500 has tumbled 14%. This does not inspire confidence.
Last December -- when Berkshire peaked at $151,650 -- I questioned whether the stock was overvalued. But I did not think it would fall to its $84,000 Wednesday close (BRK.A is falling again today -- over 8% to $77,000).
Buffett has since made deals to buy stakes in General Electric Company (NYSE: GE) and The Goldman Sachs Group (NYSE: GS), which don't look so great now. He did get a nice 10% yield, but the conversion prices of the warrants he took on were much higher than their current prices -- $22.55 and $14.45 for GE and $115 and $55.18 for Goldman, respectively.
Meanwhile, Berkshire has been getting itself into a heap of operating problems. Its net earnings declined 77% in the third quarter thanks to losses in its investment portfolio and a $1.87 billion loss on derivatives. That's right -- Warren Buffett, who famously called derivatives "financial weapons of mass destruction," got hit with one of his own WMDs. While this does nothing to boost his credibility, he can derive some comfort from knowing that his biography tops the business best seller list.
Unfortunately, that does not help shareholders who have seen their stock sink 45% since that December peak.
Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He owns GE stock and has no financial interest in the other securities mentioned.
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