Thats right. Berkshire Hathaway has had its debt rating cut by Fitch. Are you kidding! I predicate that there is hardly an institution more culpable for the “economic crisis” than the rating companies. They essentially gave the green light for the whole thing to take place by rating sub-prime mortgages as “AAA.”  Only companies with strong balance sheets and solid cash flow deserve such a rank, not pieces of junk sliced up and repackaged. Now I’ve gotten myself sidetracked. Berkshire had $25 billion in cash at the end of the quarter. Buffett has stated multiple times that he would feel uncomfortable with less than $10 billion incase of any ‘acts of god’ (it is an insurance and reinsurance company after all). Does this sound like a company in trouble? The largest concerns about Berkshire relate to its use of derivatives. As I will explain, while they do add a bit of risk, there is always a trade off between risk and reward and Buffett has found a win-win for Berkshire over the long term. 

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I would suggest any person interested in value investing consider reading Berkshire Hathaway’s annual letter. A good link to other commentary on the annual letter can be found on here. As always it is a fairly optimistic analysis of  the years to come with a little grandfatherly advise tossed in. Buffet has always measured the value of Berkshire in terms of book value. Last year there was a decline in book value for Berkshire of 9.6% compared with the S&P of 27.4% which ranks as the best relative performance in 6 years. 

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