Friday, May 8, 2009

Mr. Buffett took a hit!

The legendary investor, Warren Buffett’s insurance company, Berkshire Hathaway Inc. released its first quarter earnings today. Unexpectedly, Berkshire reported a loss of $1.5 billion in the first quarter.

According to the report, because more companies filed for bankruptcy in this quarter, Berkshire took a loss from its credit-default swap (CDS) portfolio. CDS is a form of insurance against the default of a loan.

In addition, the loss also contributed from its $3 billion preferred stock on Dow Chemical Co. What made it a bad investment because Dow Chemical lost the funding for an acquisition from Kuwait’s government; this immediately put Dow into a financial distress and further credit crunch. Since then, Dow’s share price plunged.

To many people, this news implies that nobody was immune from this financial crisis, even a legendary investor like Mr. Buffett also suffered a loss. But one thing that distinguishes Berkshire from other financial institution is that it did not take any TARP money from the government. Hence, it will be easier for Berkshire to return to profit in the coming quarter.

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