What's Happening to Berkshire Hathaway?

Portfolio.com - November 20th, 2008

Jonathan Stempel of Reuters has a very useful look at what's going on at Berkshire Hathaway, which fell $6,500 per share today to close at its lowest level in over five years. After reading his article, I think we might be one step closer to understanding why Berkshire's CDS are trading so very wide right now.

"The insurance business which is a significant portion of their earnings, is a very cyclical business," says Harry Rady, CEO of Rady Asset Management in San Diego. "With everything else at an extremely significant discount, I see a lot more downside. There is so much opportunity to buy assets for 50 cents on the dollar, why buy a dollar for a dollar because Warren Buffett runs it?"

Or, to put it another way: if Warren Buffett isn't buying back his own shares at these levels, then that must be because he sees better uses for Berkshire's capital elsewhere. Which in turn means that you and I might be better off elsewhere, too.